# The stop: where it goes and why > Place a stop where the trade idea is proved wrong, not where the loss feels comfortable, and know what a gap does to it: the real loss can be bigger than planned. - Course: [Trading Basics: How It Works, How Not to Lose Everything](https://productovi.com/courses/trading.md) - Module: How much can I lose on one trade? - Lesson 10/32, ~27 min - Source: https://productovi.com/courses/trading/where-the-stop-goes ## Two stops, one trade **Alex Tutor:** Back on your Pebble practice account, today Marc and Nora bought the same thing at the same moment: 100 Bluefin Energy at the close on 30 January, 38.65. Only their stops differ. **Dataset (CSV):** [Bluefin Energy, daily prices](https://productovi.com/datasets/trading/where-the-stop-goes/m3_bfe_daily.csv) One row per trading day: the first price, the highest, the lowest and the last. Entry on 2026-01-30 at the close. - `open`: The first price of the day - `high`: The highest price of the day - `low`: The lowest price of the day - `close`: The last price of the day **Marc:** My idea: Bluefin fell for three weeks, found a low at 37.32 on 26 January and bounced. If the price goes back below that low, the bounce has failed and my idea is wrong. So my stop sits a little under it, at 37.12. **Nora:** Mine's simpler. I don't want to lose more than 40 dollars, so the stop is 40 cents under my entry: 38.25. **Alex Tutor:** Two different questions. Marc asked "where am I wrong?". Nora asked "how much would I like to lose?". The market only answers the first one. **Alex Tutor:** So which question should set a stop? Pick one. > **Exercise:** Which question should decide where a stop goes? ![Nora plants a small flag right at her feet at the top of stone steps, Marc kneels and plants his flag just under a low ledge further down, and Alex watches both.](https://productovi.com/courses/trading/diagrams/m3-l2-scene.png) > **Exercise:** Marc bought Bluefin Energy at 38.65; his idea is wrong if the price goes back below the 26 January low of 37.32. Why does he put his stop at 37.12 rather than exactly at 37.32? **Sofia:** How big should that buffer be, then? **Alex Tutor:** There's no magic number. Look at how far the price usually wanders past a level before turning, and stay outside that. Then measure the loss honestly. **Marc:** In my case that's 1.53 a share from the entry. > **Exercise:** Marc bought 100 shares at 38.65 with his stop at 37.12. If the stop fills at 37.12, how many dollars does he lose? Ignore costs. ## The next morning **Nora:** On 2 February my stop went off. The low that day was 38.07. Minus 40 dollars, exactly as planned. **Alex Tutor:** Now look at the next day's close: 38.76, above your entry. And on 13 of the next 14 days the price closed above 38.65. **Sofia:** So the idea wasn't wrong. The stop was just inside the normal wiggle. **Alex Tutor:** Yes. In the 20 days up to the entry, Bluefin's high minus low averaged 0.50 a day. A 40-cent stop sits inside one ordinary day. It gets hit by noise, not by being wrong. **Alex Tutor:** Here's how that 0.50 is made. Try it on five days of another made-up instrument. > **Exercise:** Five days of a made-up instrument had these highs minus lows: 0.62, 0.44, 0.51, 0.39 and 0.54. What is its average daily range? > **Exercise:** Nora bought Bluefin Energy at 38.65 on 30 January, with a stop 40 cents lower at 38.25; the trade idea relied on the 37.32 low holding. Her stop was hit on 2 February because her trade idea had been proved wrong. **Nora:** Fine. Then I'll put my stops far away, like Marc. Problem solved. **Alex Tutor:** Not quite. A stop belongs where the idea fails, not "far". And even the right stop has a weakness. Keep reading the file to 23 February. ## The report gap **Marc:** Bluefin reported results before the open on 23 February. The day before closed at 38.95. The next morning it opened at 36.15. **Alex Tutor:** That's a **gap**: the price jumped over every level in between, including the stop at 37.12. Nobody traded at 37.12, so the stop sold at the first price there was, the open. > **Exercise:** Marc's stop at 37.12 sells at the 23 February open, 36.15. What is his real loss on the 100 shares bought at 38.65, in dollars? Ignore costs. **Sofia:** So what can Marc do about it, if not move the stop? **Alex Tutor:** Know the dates of reports and other big news, and hold fewer shares into them, or none. Plan the trade for a bad gap, not just for the stop. And never move a stop further away to "give it room". **Nora:** So before I buy anything, I check the calendar for reports. **Alex Tutor:** A good habit. Shares and funds gap mostly around reports and big news, and over weekends. Coins have no reports, but they trade all night, so a jump can come at any hour. **Alex Tutor:** So what actually helps against gaps? More than one answer works here. > **Exercise:** Which habits actually reduce the damage a gap can do? Choose all that apply. > **Exercise:** Put the steps for placing a stop in sequence. **Marc:** I keep one line in my journal for each trade: "Wrong if…". If I can't finish that sentence, I don't have a stop, and I don't have a trade. **Nora:** I'll try that. Mine would have said "Wrong if… I lose 40 dollars." **Alex Tutor:** Which says nothing about the price. That's the whole lesson in one line. > **Exercise:** A friend sets every stop exactly 2% under the entry, "because that's a loss I can live with". In 2–3 sentences, explain what is wrong with that and where the stop should go instead, using one number from the Bluefin data. > **Key ideas** > > - A stop goes where the **idea is wrong**: Marc's 37.12, just under the 37.32 low. > - A stop set by a **comfortable loss** often sits inside the normal daily wiggle: Nora's 40 cents against an average day of 0.50, hit by noise. > - Too much loss at the right stop? Buy **fewer units**; don't move the stop. > - A **gap** jumps over the stop: Marc planned 153 and lost 250 when the report day opened 7.2% lower. > - Know report dates and hold less, or nothing, into them. > **Educational, not advice** > > This course explains how trading works; it never tells you what to buy or sell. A stop limits losses only roughly: gaps and fast markets can skip it. Most people who trade lose money, and you can lose all of it. For taxes and rules, ask a licensed professional where you live. - Previous lesson: [Risk per trade: a small share of the account](https://productovi.com/courses/trading/risk-per-trade.md) - Next lesson: [Position size from risk and stop](https://productovi.com/courses/trading/position-size.md) --- Productovi Learning. Free, no sign-up needed to read.