WHY matters karta hai: Position size, targets aur expectancy — SAB stop distance se derive hote hain. Agar tumhe pata nahi kahan tum galat ho, toh trade size nahi kar sakte. Har cheez R se hi flow karti hai.
WHAT: e.g. "always risk 2% below entry."
HOW (stop price derive karo): Long entry E aur percent p ke liye:
Stop=E(1−p)
WHY sahi lagta hai: Simple, consistent, koi judgement nahi.
WHY flawed hai: Ek 2% stop ek sleepy utility par bahut bada hai aur ek volatile small-cap par kuch bhi nahi. Yeh ignore karta hai ki stock kitna breathe karta hai → random noise se stop out ho jaate ho.
ATR = TR ka averagen bars ke upar (usually n=14):
ATRn=n1∑i=1nTRi
WHY aise derive karte hain: ATR stock ka typical one-bar move hai. Stop ko k times us par place karna matlab hai "sirf tab exit karo jab move mere against abnormally bada ho" — tum normal noise automatically filter karte ho.
WHY yeh "smartest" hai: Market khud wrong-point define karta hai. Agar tumne $100 par swing low se bounce buy kiya, toh $100 ke neeche break matlab bounce fail → long rehne ki tumhari wajah khatam. Toh stop jaata hai, say, $99.7 par (level ke neeche ek chhota buffer).
HOW: Structural level dhundho → ek chhota buffer add karo (aksar ATR ka fraction) taaki tum exact tick se bahar baitho jise sab dekhte hain → wahi tumhara stop hai.
To pre-define and cap your loss (one unit of risk R) at the price where your trade idea is proven wrong.
Formula for True Range?
TR=max(H−L,∣H−Cprev∣,∣L−Cprev∣).
Why does TR take the max of three values instead of just H−L?
To account for overnight gaps, so movement is never underestimated.
How is ATR built from TR?
ATR True Range values ka average hota hai (usually 14-period).
ATR-based long stop formula?
Stop=E−k⋅ATR, jahan k typically 1.5–3 hota hai.
Fixed percent long stop formula?
Stop=E(1−p).
Where does a structure stop go?
Just beyond (with a small buffer) a chart level like a swing low/high or support that would invalidate the thesis.
Why is a fixed % stop weak across different stocks?
Yeh volatility ignore karta hai — same distance volatile stocks ke liye bahut tight aur calm stocks ke liye bahut wide hoti hai.
If risk is $500 and risk-per-share is $4, how many shares?
500/4=125 shares.
What should you shrink to reduce dollar risk instead of tightening the stop?
Position size (shares), keeping the stop at a logical distance.
Effect of increasing multiplier k?
Wider stop → fewer whipsaws but larger loss per trade (and smaller size).
Recall Ek 12-saal ke bacche ko samjhao (Feynman)
Socho tumne dost se bet lagayi ki kal barish hogi. Stop-loss matlab tum keh rahe ho "agar dopahar tak dhoop nikli, toh main haara aur main quit karta hun — koi argument nahi." Fixed stop matlab ek set number of hours ke baad quit karna chahe kuch bhi ho. ATR stop matlab sirf tab quit karna jab normal din se bahut zyada dhoop ho, kyunki thodi dhoop toh normal hai aur iska matlab nahi ki tum galat ho. Structure stop matlab tab quit karna jab kuch clearly prove kare ki tum galat ho — jaise ek poora rainbow of dhoop. ATR aur structure stops smarter hain kyunki woh ek sachchi nishani ka intezaar karte hain ki tum galat ho, na ki kisi random cloud ka.
