Cutting loss position is taught by the method. It’s not based on gut feeling
The place to set your stop is taught by the method. It’s not a feeling
The stop location isn’t decided by a fixed number of pips. The method tells you.
“What pips should I place the stop at?” — This is a frequently asked question. However, this question contains a large misunderstanding.The stop location isn’t determined by a sense of how many pips. It is determined by your method.
Up to here, I have explained from market awareness to the entry. This time, I will discuss an important point: that the method itself also determines the stop location. The grounds for entry and the stop location are actually one and the same.
The danger of deciding by a fixed “how many pips”
Some people decide the stop by a fixed value of pips, saying things like “I always stop at 20 pips.” But this is a mechanical way of deciding that ignores the structure of the market.In each market, the magnitude of price movement and meaningful levels differ, and yet using the same fixed pip width all the time is not appropriate for the situation.
Especially for high-movement instruments like gold, which I explained in Series 5, fixed-pip stops are easily hunted by noise. The stop location should be determined based on the current market structure, not by a predetermined fixed value.
The place where the entry premise collapses = the stop
So where should you place the stop? The principle is simple.Place it at the place where the entry premise collapses.
Last time, I explained that entry is the result of conditions being met. Therefore, if those conditions collapse, the premise for the entry disappears. In other words,the place where the basis for the entry collapses is precisely where you should place the stop. It is the place beyond which you can judge that your reading was wrong. That is a logical stop location.
Long entry basis: rebound from the pullback in an uptrend
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The place where that basis collapses: clearly break the pullback’s low
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= that is the stop location
You stop when the price breaks below the pullback because “the premise of an uptrend collapses.”
It’s the structure, not the pip count, that decides the stop.
The method consistently guides you to the stop
This is one of the great advantages of having a method.From market awareness to entry, and then to the stop, everything is guided by one logical thread.
When you judge an uptrend by Dow Theory and buy on a pullback of the N-wave, if the pullback’s low (the premise of continued uptrend) is broken, you stop. The logic for entry and the logic for the stop align perfectly. Rather than scattered judgments, a coherent, principled method guides you from entry to exit. This is the strength of a systematic approach.
If you place stops by feel, this consistency is lost. Entry by method and stop by sensation leads to inconsistent decisions. The stop is also part of the method. With the same logic as the entry, the method tells you where to stop.
Stop placement determines lot size
And the stop location the method teaches connects to the lot calculation discussed in Series 3 and 6Lot calculation. Once the stop location is decided, you know the stop range from entry to stop. From that stop range and your allowed loss per trade, you can back-calculate an appropriate lot size.
In short, the method tells you the stop location, and that stop location then determines the lot size. Everything is connected in one flow. If you stop at stops by feel, you cannot achieve this consistent risk management. Stops based on the method also form the foundation for correct lot calculation.
The stop location is taught by the method. Not by feeling — please discard the question of “which pips to place it at.” The stop is placed where the entry premise collapses, and that is logically taught by your method. From entry to stop to lot size, do it under a single method. This consistency is the proof of reproducible trading.