Last updated: 17 October 2026 · By Spencer Li, CFTe

Put your stop loss at the price where your trade idea is proven wrong, with a little room beyond it for normal noise. Put your take profit at the nearest price level where the move is likely to stall. And set them in a particular order: stop first, size second, target third.

The stop comes first because it decides how big the position can be. Divide what you are willing to lose by the distance from your entry to your stop, and that is your position size. Only then look at the target, and take the trade only if the target sits far enough away to pay for the risk, at least 2 times the distance to the stop as a working minimum.

The entry is simply the price where your setup triggers. If price has already run most of the way to the target by the time you notice, the maths no longer works, and the right entry is often no entry at all.

What are entry, stop loss and take profit?

They are the 3 prices that define a trade before you place it. Traders often shorten them to EP, SL and TP.

Each one answers a different question, which is why each needs its own reason. A stop placed “5% below, because that feels about right” has no reason behind it, and the market has no way of knowing it is there.

Why does the stop come first?

Because it decides the size, and the size decides the damage. Let me use one hypothetical example with round numbers.

A stock trades at 50 and your setup triggers there. The level your idea depends on sits just above 47, so the stop goes at 47, which is 6% below the entry. You risk 1% of your account on every trade. So the position is 1% divided by 6%, about 16.7% of the account. If the stop is hit, you lose 1%, exactly as planned.

Now look at the target. The closest level where sellers showed up before is around 56, which is 6 points above the entry, twice the 3-point distance to the stop. That makes it a 2R trade, where R is the amount you risked. Worth taking.

Do it in the other order and the plan starts to slip. Pick the position size first, by feel, and then the stop ends up wherever keeps the loss “comfortable”, which is usually too tight, inside the stock’s normal wiggle. The 2% money management rule for position sizing walks through the sizing step by step.

Where should the stop go?

Beyond the level that your trade depends on. If you buy because price bounced off support, the idea is wrong once price breaks back through that support, so the stop sits just below it. Placing it at a round percentage, or at an amount of money you would like to lose, ignores the chart completely.

A trader on r/technicalanalysis asked about the most common complaint in September 2026: “Stopped out at the exact high/low repeatedly.” He wanted to know if it was a known effect. It is a familiar pattern. One common explanation is that many traders put their stops at the same obvious spot, just past the last swing high or low, and a quick move into that cluster triggers them all before price turns.

So give the stop a buffer beyond the obvious level, sized to the stock’s normal daily range. A wider stop then means a smaller position, so the risk stays the same. The exact buffer and stop rules we use are part of what we teach in the course. The principle is the part that matters here: the stop marks where you are wrong, plus enough room that ordinary noise cannot reach it.

Do note one limit. A stop is an instruction to sell at the next available price. If the stock gaps through your stop overnight, the fill can be well below it, and the loss larger than planned.

If you want a daily routine for setting all 3 before you trade, the free 15-Minute Swing Trader’s Checklist is at the end of this post.

Where should the take profit go?

Near the closest level where the move is likely to pause: the last swing high for a long trade, or a resistance zone price has struggled with before. Put it slightly in front of that level, since the crowd tends to sell into it.

Then check the ratio. If the target is less than about 2 times as far away as the stop, many swing traders simply pass, because a strategy that wins half the time or less needs winners bigger than losers to come out ahead. How win rate and payoff trade off against each other is the whole subject of win rate versus reward-to-risk ratio.

A fixed target is only one way to exit. Some traders take part of the position off at the target and let the rest run behind a moving stop, and some exit when an indicator turns, which is the idea in using trading indicators to exit trades.

Where should the entry go, and is it ever too late?

The entry goes where the setup confirms, and not before. One of our students asked a question I hear in some form every week: “in your opinion is it too late already to enter with that set-up?”

The 3 prices answer it for you. Take the same hypothetical stock. Say you only notice it once it has already reached 53. The stop still belongs at 47, because that is still where the idea is wrong, and the target is still around 56.

Same stock, same chart, same idea. Chasing it turned a 2-to-1 trade into a 1-to-2 trade. So yes, it can be too late, and the ratio is how you tell. If the reward left on the table is smaller than the risk, the trade has already happened without you.

Personally, I think writing the 3 prices down before you click is the single most useful habit in trading. It moves every decision to the moment you are calm, which matters because cutting a loss in real time is hard for everyone, as the psychology of the stoploss explains. For the bigger picture, read why risk management is important in trading and the practical guide to money and risk management.

FAQ

Where should I put my stop loss?

Just beyond the level your trade idea depends on, plus a buffer for normal noise. For a long trade off support, that means a little below the support level.

How far should a stop loss be from the entry?

As far as the chart needs, and no closer. Then shrink the position so that hitting the stop still costs only your fixed risk per trade.

Where should I put my take profit?

Slightly in front of the closest level where price is likely to stall, such as a previous swing high for a long trade.

What is a good reward-to-risk ratio?

Many swing traders look for at least 2 to 1. The right minimum depends on your win rate, since a lower win rate needs bigger winners.

Why does my stop loss keep getting hit before price reverses?

Usually because it sits at the obvious level, where many other stops cluster. A buffer beyond that level, with a smaller position to keep the risk the same, is the common fix.

Go deeper

The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that keep you in the game.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

Last updated: 17 October 2026 · By Spencer Li, CFTe

Risk of ruin is the probability that a run of losses takes your account down so far that you can no longer trade. It depends on 3 things: your win rate, your payoff, meaning how big the winners are compared with the losers, and how much you risk on each trade. Of the 3, risk per trade moves it the most, and it is the only one fully in your control.

For the simplest case, where every win and every loss is the same size, there is a clean formula. Risk of ruin = [(1 − A) ÷ (1 + A)]^C, where A is your edge, the win rate minus the loss rate, and C is the number of losing trades your account can absorb. For real trading, with bigger winners than losers and a position sized as a percentage of the account, the honest method is to simulate it.

I’ll walk through both below, with round hypothetical numbers.

What counts as “ruin” for a trader?

Strictly, ruin means the money is gone. But if you risk a fixed percentage of the account on every trade, the account shrinks with each loss and in theory never quite reaches zero. So traders usually define ruin as a drawdown deep enough to end the game in practice.

Half the account is a sensible line. A 50% loss needs a 100% gain to recover, and by that point most people have stopped following their rules anyway. Pick your own line, but pick it before you calculate, because the answer depends on it.

How do you calculate risk of ruin?

Start with the classic formula, which assumes wins and losses of equal size, like a coin flip with a slight tilt.

Say you win 55% of the time and lose 45%. Your edge A is 0.55 minus 0.45, which is 0.10. The formula then becomes 0.9 ÷ 1.1, about 0.82, raised to the power of C.

C is how many losing trades the account can take before it is gone. If you risk 10% of your starting account per trade, C is 10. At 5% it is 20, and at 2% it is 50.

Same 55% win rate, same edge. At 10% per trade, the odds of losing everything are roughly 1 in 7. At 2% per trade, they are roughly 1 in 25,000. I checked the formula against 5,000 simulated runs and it held, giving 13.6% and 1.9% for the first 2 rows.

What about real trading, where winners are bigger than losers?

Most swing trading looks nothing like a coin flip. You lose more often than you win, and the winners are larger. The formula above does not handle that, so I simulated it.

Take a hypothetical strategy that wins 40% of the time, with winners of 2R and losers of 1R, where R is the amount risked per trade. That is a genuine edge, worth 0.2R per trade on average. Now run it 20,000 times at different sizes and count how often the account falls to half its starting value within 200 trades:

Read that table slowly, because the strategy never changed. At 2% per trade it almost never breaks. At 10% per trade, the same winning strategy halves the account nearly half the time, and at 20% it does so in most runs. The edge was real the whole way down the table. Only the size changed.

So here are the 3 levers of ruin, in order of how much control you have:

1. Risk per trade. Fully yours, every trade.
2. Payoff. Partly yours, through where you place stops and targets.
3. Win rate. Mostly the market’s, and the hardest to improve.

If you want a daily routine with the sizing rule built in, the free 15-Minute Swing Trader’s Checklist is at the end of this post.

Can you get your risk of ruin to zero?

Close, but never exactly. A trader on r/Daytrading posted an old account in October 2026 under the title “35 consecutive losses. Max drawdown 1.21%. This is what zero ruin risk actually looks like.” Over 2,718 trades, his worst run was 35 losses in a row, and in his words, “35 losses in a row and the account barely moved.”

The numbers check out. A 1.21% drawdown across 35 straight losses means he was risking something like 0.035% of the account per trade. At 2% per trade, the same 35-loss streak would have cut the account roughly in half.

His central point is the right one: “The right starting point is the loss.” Plan the worst streak first, then size for it. Where I would push back gently is on “zero”. A risk that small makes ruin vanishingly unlikely, and it also makes every win tiny. There is a trade-off, and the art is choosing a size where the worst realistic streak hurts without ending anything.

Do note 2 limits of any risk of ruin number. First, the maths assumes each trade is independent. In real markets losses can cluster, when several positions are really the same bet or the market regime changes, so the true risk is higher than the table says. Second, the inputs are estimates. A win rate measured over 30 trades can be far from the real one, which is the subject of how many trades you need before judging a strategy. Build in a margin for both.

What risk of ruin should you accept?

As close to zero as you can get while still making the trading worthwhile. The ruin line is a level you never come back from, so it deserves a very wide berth. In practice that means a small, fixed risk per trade, the same on every trade, which is what the 2% money management rule for position sizing sets out. Many traders sit well below 2%.

Personally, I think risk of ruin is the number that turns the casino idea from a slogan into arithmetic. The house keeps its bets small relative to its bankroll so that no run of bad luck can close it, which is the whole point of trading like a casino rather than a gambler. There is also a formula that tells you the most you could ever sensibly bet with a known edge, and why you should stay well under it: the Kelly criterion for position sizing. For the bigger picture, read why risk management is important in trading and the practical guide to money and risk management.

The trader with 35 losses in a row did not have a better strategy than everyone else. He had planned for the 35th loss before the first one happened, and his account was still there to see trade 2,718.

FAQ

What is risk of ruin in trading?

It is the probability of losing so much that you can no longer trade. Traders usually define ruin as a set drawdown, such as half the account, because fixed-percentage sizing never quite reaches zero.

What is the risk of ruin formula?

For equal-sized wins and losses, you divide 1 minus A by 1 plus A, then raise the result to the power of C. A is the win rate minus the loss rate, and C is the number of losing trades the account can absorb.

How does risk per trade affect risk of ruin?

It is the biggest lever. In the simulated example above, the same winning strategy went from almost never halving the account at 2% per trade to halving it about 43% of the time at 10%.

Can a winning strategy still go broke?

Yes. A positive edge only protects you if the size of each trade lets you survive the losing streaks that come before the edge shows.

What is a good risk of ruin?

As close to zero as you can manage while the trading is still worth doing. Because ruin is permanent, a small fixed risk per trade is the usual answer.

Go deeper

The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that keep you in the game.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.