n the last lesson, we talked about setting your stop loss based on a fixed percentage of your trading account.
Now let’s take a smarter approach—basing your stop loss on what the charts are actually showing you.
Since we’re trading price action, it only makes sense to let the market itself guide where our stops should go, right?
Using Support and Resistance to Place Stops
One thing you’ll notice when looking at charts is that price often struggles to break above certain levels (called resistance) or below others (called support). When price retests these areas, they often hold—at least temporarily.
So, placing your stop just beyond key support or resistance zones is logical. Why?
Because if the market breaks through those levels, it likely means something has shifted—buyers or sellers have lost control—and you don’t want to be on the wrong side of that move.
Chart Example: Breakout Setup
Take the chart below as an example. Price has broken above a falling trend line, and you’re thinking, “This looks like a solid breakout setup.” You’re ready to go long.
But before you jump in, ask yourself:
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Where should I place my stop?
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At what point is my trade idea proven wrong?
In this case, placing your stop just below the trend line and support zone (like under 1.2800) makes sense. If the price drops back below these levels, that breakout likely failed, and it’s time to cut your losses and move on.
Chart Example: Shorting EUR/USD
Here’s another example. EUR/USD is in a downtrend and bouncing off a falling trend line, creating a strong resistance level.
You decide to sell at 1.3690—right at resistance.
So where does your stop go?
Place it above the trend line, say around 1.3800. That way, if price breaks through, you’re out. It means sellers didn’t hold the line.
Let’s say you aim for profit targets at 1.3530 and 1.3450.
In this case:
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The trade is triggered.
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The trend line holds as resistance.
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Price drops and your first target is hit.
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Price just misses your second target by a pip, but since you moved your stop to breakeven, you walk away without a loss.
Final Takeaway
This example shows the benefit of setting stops based on key levels from the chart—not just a random number or fixed percentage.
Always let the market structure help guide your decisions. It’s one more step toward trading like a pro.