Stop-loss distance
How far below the entry price should a stop be placed so that ordinary noise does not close the trade first?
In plain words
A stop-loss is an instruction to close a position once the price reaches a chosen level. The stop-loss distance is the gap between the entry price and that level, usually expressed as a percentage. Setting it wide enough to absorb normal price swings, while narrow enough to limit real damage, is the central sizing decision.
Why it matters
A stop placed closer than typical price noise gets triggered by movement that carries no information about the trade's direction. The trader takes the loss, pays the spread and is out of the position before the market has expressed a view. A stop placed too wide, by contrast, permits a loss far larger than the position can bear.
In a real week: BTC, week of 24 June 2019
In the week of 24 June 2019, BTC ranged 32.73% between its high of 13970.0 on Wednesday and its low of 10525.1 on Thursday, a week whose realised volatility reached 155.9% a year. The largest single hourly move was -7.79%, and daily returns ran from 10.76% on 26 June to -13.5% on 27 June. A stop placed only a few percent from entry would have been hit by one of these swings before the week's direction became clear.
A common mistake
Choosing the stop distance from the amount of money one is willing to lose, and then sizing the position to fit it. Volatility must set the distance first; position size follows from the distance.