We’ve already talked about how using a stop-loss is one of the most important rules for surviving long-term in the stock market.
Most investors who don’t use stop-losses eventually wipe out a large portion of their portfolio.

But this article isn’t about those who don’t use stop-losses —

It’s for those who do use them, but use them the wrong way.

Traders who use stop-losses incorrectly don’t usually take huge losses —
but they suffer unnecessary ones.
They end up getting stopped out of trades that could’ve been profitable, and over time, they grow frustrated and lose interest in the markets altogether.

So, how should a stop-loss actually be used?

Let’s talk about how improper stop-loss placement creates pointless losses —
and how to apply it the right way.

❌ The 3 Most Common Stop-Loss Mistakes

1. Using Random Stop-Loss Levels

Many traders pick arbitrary levels for their stops.

For example:

“If the price drops 5%, I’ll stop out.”

But they never ask:

“Is that level technically meaningful?”

If your stop-loss is placed at a meaningless level, you’ll likely get stopped out too early — and miss out on a trade that could’ve been profitable.

✅ Tip: Place your stop-loss at technically significant levels.
If the level is too far from your entry, don’t take the trade.

2. Setting Stops Too Close or Too Far

If your stop is too close, small price fluctuations will stop you out — and then price continues in your direction.
If your stop is too far, you risk losing more than necessary.

✅ Use volatility indicators like ATR (Average True Range) to find proper stop distances.
Every market has different volatility.
Trying to trade a volatile altcoin with a 1% stop-loss is just gambling.

✅ 3 Rules for Proper Stop-Loss Usage

1) Base Your Stop-Loss on Technical Levels

Your stop-loss should be based on key support/resistance levels or trendlines.

Example:
If a stock is sitting at a key support, place your stop just below that level.

Some traders stop out immediately when that level is hit.
Others wait for the daily close to see if the price actually finishes below the level.

I won’t say one is wrong — but personally, I’m on the “stop immediately” side.

2) Use a Risk-Reward Ratio

Your risk-reward ratio should be at least 1:2 or 1:3.

For example:

If your target is smaller than your stop-loss, the trade isn’t worth taking.

3) Don’t Move Your Stop-Loss Once It’s Set

This is one of the biggest mistakes traders make:

“Maybe it’ll bounce back…”
“I’ll just lower my stop a little more…”

No.
Once you’ve set your stop — stick to it.

Adjusting your stop lower as the loss grows usually leads to disaster.
Don’t talk yourself out of the plan you already made.

If you have any questions about stop-loss strategies or trade management, feel free to reach out via the contact section.