Where to place your stop-loss?

BULLSAGE Trader by MyBotIA · Published on 5 November 2026 · Educational content prepared with AI assistance, calculations checked. No personalised financial advice.

If the term is new to you, start with what is a stop-loss.

Start from the invalidation

Every scenario rests on a hypothesis: a support that holds, a trend that continues, a level that is broken. The stop marks the price from which that hypothesis can no longer be defended. The order of preparation is therefore: invalidation, then distance to the stop, then quantity. The quantity follows from the loss budget and the distance, as in the position sizing guide.

Method 1: market structure

For a buy, the stop is often placed below a clearly identifiable recent low, with a small margin so that you are not taken out by a simple return to the level. For a sell, the reasoning is symmetrical, above a recent high.

Method 2: volatility and the ATR

The ATR (Average True Range), described by J. Welles Wilder in 1978, measures the average size of price moves. The “true range” of a period is the largest of three gaps: high − low, |high − previous close| and |low − previous close|. The ATR is a smoothed average of it, often over 14 periods.

A stop placed less than one ATR from the entry sits inside the market’s normal noise: it can be hit without the scenario being wrong. Multiples of 1.5 to 3 ATR are common; these are conventions, not rules validated for every asset.

Too tight, too wide

A stop that is too tight gets triggered by noise and piles up small losses. A wider stop does not increase the planned loss if the quantity is reduced accordingly: with a €100 budget, a €4 distance gives 25 units and an €8 distance gives 12. What increases the risk is widening the stop without recalculating the quantity.

Moving the stop to avoid a loss in progress amounts to changing the scenario after the fact. Raising a stop to protect a gain (a trailing stop, which follows the price as it moves in your favour) is a possible choice, provided it is written into the plan before entry.

A stop does not guarantee the exit price

A stop market order becomes a market order when its level is touched: it can fill lower, especially during high volatility or an opening gap (when the price opens well away from the previous close). A stop limit order may not fill at all. Source: FINRA, risks of stop orders.

With 25 units and a stop at €96, an opening at €94 after an announcement gives a gross loss of 25 × 6 = €150 instead of €100. Crypto-assets trade continuously, but liquidity can be thin at night and at weekends; shares, for their part, can open far from the previous day’s close.

Checks before a simulation

• The stop matches a level that invalidates the hypothesis, and that hypothesis is written down.
• The distance is compared with recent volatility (ATR or average range).
• The quantity is recalculated from that distance, fees included.
• Scheduled events (earnings, macro announcements) that could cause a gap are identified.

Then check that the target justifies this risk with the risk/reward ratio, and bring it all together in a trade plan.