Why they must be set before entry
Setting a stop-loss while already in a position lets whatever you’re feeling — fear from a loss, greed from a gain — distort the decision. Stops and targets must be decided before entry, while no emotion is yet involved.
How to decide your stop
- The price at which your entry logic is proven wrong — based on market structure, not just a dollar amount
- Enough room relative to volatility so normal noise doesn’t stop you out early
- Work backward from your account risk percentage to size the position
How to decide your target
- A level the market has actually reacted to before — prior support/resistance, previous highs/lows
- A minimum target that respects your risk-reward ratio (e.g. at least 1.5–2x your stop distance)
- Consider scaling out in parts rather than closing the entire position at once
Don’t move it once it’s set
Pushing your stop back because the position is moving against you isn’t risk management — it’s risk expansion. Respect the line you set in advance, log the outcome, and revisit the rule before your next trade — not during this one.
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