Many new traders make the mistake of believing that risk management is only about placing stop-loss orders close to their entry points. It is true that smart money management involves not entering trades with stop-loss levels that are so far away from your entry point that the trade has a negative risk/reward ratio (in other words, risking more in the event that the trade fails than you stand to profit if it succeeds). However, one common factor contributing to trading failure is placing stop orders too near to your entry point, as demonstrated by having a trade stopped out for a loss, only to see the market turn around in your favor as well as seeing price advance to a level that would have brought back a substantial profit...if only you hadn't been stopped out for a loss.



Yes, it is important to only engage in trades where you can set a stop-loss order close enough to the entry point to prevent a massive loss. It is also critical to put stop orders at a suitable price level, depending on your market analysis.



It is generally recommended that your stop-loss order be placed slightly above a price that the market cannot trade at if your market analysis is correct.

Placing stop-loss orders at reasonable price levels is crucial for effective risk management in trading. A stop-loss order is designed to limit a trader’s potential loss on a position by automatically closing the trade if the asset's price reaches a predetermined level. To be effective, stop-loss orders should be placed at price levels that are logically based on market conditions, technical analysis, and volatility. Setting the stop too close to the entry price might result in premature exits due to normal market fluctuations, while placing it too far might expose the trader to larger losses. Reasonable stop-loss levels consider factors like support and resistance levels, moving averages, and recent price action. This approach helps traders protect their capital, maintain discipline, and avoid emotional decision-making during volatile market conditions.