Stop Losses and Position Sizing

A stop loss is a pre-set exit price that caps the damage of a trade. You choose it before entering, while you're still calm.

Position sizing turns that stop into a risk budget. If you risk 1% of a $10,000 account ($100) and your stop is $2 below entry, you buy 50 shares. The stop distance sets the size — not your enthusiasm.

Pair it with a take-profit level to get a reward-to-risk ratio. Risking $100 to make $200 is 2R; with 2R trades you can be wrong more than half the time and still make money.

Two failure modes: stops so tight that normal noise ejects you, and stops you move further away to avoid taking the loss. The second one ends accounts.