How to set a stop-loss (the chart-led way)

Most stop-loss advice is a round number in disguise — "use 8%", "never risk more than 5%". The market doesn't know your percentages. Levels come from the chart; here's how to read them.

The principle: stops live below structure

A stop exists to trigger when the setup fails, not when price wiggles. So it belongs just below the nearest level whose failure would actually mean something:

• The recent swing low — the last place buyers stepped in. Below it, the pattern of higher lows is broken.
• The 50-day average — the medium-term trend line. Losing it turns an uptrend into a question mark.
• Established support — a level defended multiple times. Its failure means the defenders are gone.

Stop distance decides position size — not the reverse

If the right structural stop is 12% away and that risks more money than you're comfortable losing, the answer is a smaller position — never a tighter, structure-less stop. Tight stops on volatile stocks are donations.

When there is no floor

Stocks that have run vertically often have no structure for 20–30% below. Any stop there is arithmetic, not analysis. The honest choices: keep it very small, or wait for the stock to build a base. "I can't define the risk" is a complete reason to skip a trade.

Educational only — not financial advice. This guide explains general concepts for learning purposes and is not a recommendation to buy or sell any security. Always do your own research and consult a licensed financial adviser before investing.

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