Where to Put Your Stop Loss

Where to put your stop loss
Where to put your stop loss

So I talked about “What is R in Trading” and why it is so important to understand. I hope I made clear that R lets you focus on and manage Risks by always setting a stop loss order to take you out of a position automatically if things turn against you. Now, after writing that I was thinking: Where would I place my stop loss? How do I do it? And can I explain how I usually place my stop loss orders? Interested in knowing how I do it? I will give it a shot and do my best to explain it to you.

The most basic rule I use for placing a stop loss order on my trades is this:

I want to be taken out of the trade automatically when the market shows me that my initial idea or reason for entering the trade, is no longer valid.

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What is R in Trading?

And Why is R So Important to Understand?

Risk

R in Trading is an objective way to think about success or failure in a trade. R expresses the (possible) return on a trade as a multiple of the risk taken on by that trade.

In my trading log, I register the amount of R I make. Also in my trading videos and ideas, I always talk about targets, for example, as 2R or 3R. You may have wondered why I am doing that. Why don’t I just talk about pips, points, or dollars risked, won or lost on a trade?

To answer these questions in full, we need to dive more deeply into the concept of R in trading. We will look into Risks, Returns, Probabilities and how these relate. Let’s go!

Continue reading “What is R in Trading?”