Where to put a stop loss, and why yours keeps getting hit

A stop loss marks the price at which a trade is wrong. Many traders place it at the loss they can bear instead. That question matters, but position size answers it. Mix the two up and the stop ends up at a price that has nothing to do with the chart.

The stop sets the price, the size sets the loss

Say you buy a breakout from a base whose low is ₹470, with the stock at ₹500. If the price falls back under ₹470, the breakout failed and the reason you bought is gone. That is where the stop goes.

How much you lose there is then set by how many shares you hold. With ₹5,000 to risk and ₹30 between entry and stop, you buy 166 shares. A wider stop means fewer shares, not a bigger loss. The position size calculator does this sum for you.

Three ways to place a stop

Below the structure. Under the low of the base, the last swing low, or the day the breakout started. It is where the chart says the idea failed, and it is the most common choice for swing traders.

A multiple of the stock's normal movement. The average true range (ATR) is a stock's typical daily range. A stop two ATRs below the entry gives a jumpy stock more room and a quiet stock less, so ordinary noise doesn't knock you out.

A fixed percentage. Say 7% below the entry. Simple and consistent, but blind to the stock: 7% is a quiet week for some stocks and a crash for others. It works best as a ceiling on the other two methods: below the structure, but never more than 8% away.

Why stops get hit for nothing

Too tight for the stock. A stop 2% away on a stock that moves 3% on a normal day is likely to be hit by ordinary movement. Compare the distance with the ATR before you place it.

Exactly on the obvious level. Many traders put stops right at the swing low or a round number, and prices can dip just through such levels before turning. A little room below the level costs a few shares and saves many needless exits.

Moved lower to give it room. Moving a stop down makes the loss bigger than you planned. Move stops only up, as the trade works.

When a stock gaps past the stop

A stop at ₹470 does not protect you from an opening at ₹440 after bad results. The order fills at the open, and the loss is bigger than planned. Smaller positions are the only real defence, and an honest backtest fills gapped stops at the open, as the backtest checklist asks.

Regular stop-loss orders on NSE expire at the end of the day. If you hold for days or weeks, a good-till-triggered (GTT) order, offered by many brokers, keeps the stop in place between sessions. How GTT orders work explains how to set one and what it can't protect you from.

Check your stops with your own trades

Your journal can tell you whether your stops are too tight. Look at the trades that were stopped out and then went on to the price you expected. If that happens often, the stop is inside the stock's normal noise. If almost none recover, the stop is doing its job. The trade journal analyser gives you the trades to look at.