Stop Loss and Position Sizing: The Real Account Killers

How often have you opened a trade, watched the price move against you, hit your stop, and then reverse in your original direction? How many times have you thought that the market is rigged, that market makers see your stop and hunt it before sending the price exactly where you expected it to go?

I’ve heard this complaint countless times over the years, and to be honest, I used to think the same way in my early days. Over time, I started to analyze how the market really moves and realized that the problem wasn’t some hidden conspiracy—it was how I was placing my stops.

The real reason your stop gets hit

The issue isn’t that the market is out to get you. The problem is that your stop is placed in a predictable spot, right where the price would naturally move even without anything unusual happening.

How many times have you been told to place your stop just below support or just above resistance because it’s “protected”? And how many times has the price hit your stop before reversing?

That’s because key levels aren’t precise numbers—they are zones. Price fluctuates around these levels, and if your stop is sitting inside that zone, it’s only a matter of time before it gets hit.

But the real reason traders get stopped out isn’t just poor stop placement. The biggest issue is that most traders have never even considered the average range of movement for the instrument they’re trading.

Recently, I had a conversation with a trader who was struggling with stop distances. They mentioned that even when identifying good levels, their stops were too tight, but the position size they were using didn’t allow them to set wider stops without exceeding their risk tolerance. This highlights a crucial point:

Your position size should be calculated based on the correct stop placement, not the other way around.

If you’re trading Nasdaq (NQ) and setting a 50-point stop, you’re most likely just handing your money to the market. Why? Because NQ naturally moves more than 50 points in normal market conditions. That means your stop is within the expected range of price movement, and unless you get lucky, you’re going to get stopped out.

It’s not about debating the exact range. The real question is: have you ever even considered it before deciding where to put your stop?

How to stop getting taken out too soon

Your stop should be placed strategically, factoring in the average range of the instrument and adding a proper buffer.

This is why the golden rule is: first determine where your stop should be, then calculate your position size based on the risk you can afford.

If the correct stop for NQ is 100 points and your account can’t handle that loss with a mini contract, then you need to reduce your size, maybe by using micro contracts.

Some traders say, “But that way, I won’t even make $100 per trade!”

And my response is always the same: Would you rather make $100 or lose $500?

The reality is simple: if you don’t know the normal price range of your instrument and you place your stop within that range, it’s not the market taking your money—it’s you parking your money in the wrong spot.