Stop-Loss, Risk-Reward and Position Sizing Explained

A stop-loss is the price at which a trade is closed if it moves against you, defined before the trade is ever taken. Its purpose isn't to predict the future — it's to put a hard limit on how much a single trade can cost if the idea behind it turns out to be wrong. Every strategy on this site defines a stop-loss for that exact reason: no setup works 100% of the time, and the stop-loss is what keeps a losing trade from turning into a large, undefined loss.

Common Ways to Set a Stop-Loss

• Swing-low based — placed below the most recent meaningful low in price. If that low breaks, the structure that justified the trade is gone. This is what this scanner uses.
• Percentage based — a fixed percentage below entry, regardless of chart structure. Simple, but ignores how volatile the specific stock actually is.
• Volatility based (ATR)— a multiple of the stock's Average True Range, so the stop naturally widens for more volatile stocks and tightens for calmer ones.

A swing-low stop has a practical advantage: it's anchored to an actual price level other market participants are also watching, rather than an arbitrary percentage that has nothing to do with the stock's own trading range.

Risk, in Plain Terms

Once entry and stop-loss are both set, the risk on the trade is simply the distance between them:

Risk = Entry Price − Stop-Loss Price

That number, converted to a percentage of the entry price, is how much of your position's value is at stake if the stop is hit — not how much of your total account is at stake (that depends on position size, covered below).

Risk-Reward Ratio

The risk-reward ratio compares how much you stand to make against how much you stand to lose:

Reward ÷ Risk

For example, if the risk on a trade is $2 per share and the target is $6 above entry, the risk-reward ratio is 3:1 — a favorable setup, since the potential gain is three times the potential loss. This is exactly the logic behind this scanner's T1/T2/T3 targets: they're set at 2x, 3x and 5x the risk amount, so every result already carries a known risk-reward profile rather than an arbitrary price target.

A favorable risk-reward ratio matters because it changes how often a strategy needs to be right to be profitable overall. A strategy with a 3:1 average risk-reward ratio can still make money even if it's right less than half the time, because the winners are worth more than the losers cost.

Position Sizing

Position sizing is the separate question of how many sharesto buy, and it's what actually connects a trade's per-share risk to your total account risk. A common framework:

1. Decide how much of your total account you're willing to risk on one trade (a common guideline is 1–2%).
2. Calculate the dollar risk per share (Entry − Stop-Loss).
3. Divide the account risk amount by the per-share risk to get the number of shares.

For example, on a $50,000 account risking 1% ($500) per trade, with $2 of risk per share, the position size works out to 250 shares — regardless of how many shares that dollar amount happens to buy at the stock's current price. This keeps the dollar risk consistent across every trade, even though share counts vary. This scanner reports the per-share entry, stop-loss and targets — position sizing itself is a manual step based on your own account size and risk tolerance.

Scaling Out and Trailing Stops

Multiple targets (T1, T2, T3) exist because many traders don't exit an entire position at once — they take partial profit at an early target, then let the remainder run toward a further one, sometimes trailing the stop-loss upward as the trade develops to protect the gains already made. That's a discretionary, ongoing decision made while the trade is open, not something a one-time scan can compute in advance.

This is educational content, not investment advice — see the full disclaimer. For the exact stop-loss and target formulas used by each strategy on this site, see How It Works.