Technical Invalidation

Key idea

A stop should sit at the price where the reason you entered the trade is no longer true — a broken swing low, a reclaimed level, a failed pattern boundary. Placing it instead at a round-number dollar loss or 'what feels bearable' disconnects your risk from the actual setup and produces both premature stop-outs and oversized losses.

How to apply it

• Before entering, write down the specific price and condition that would prove the setup wrong.
• Place the stop at that technical level, not at an arbitrary percentage or dollar amount.
• If the technical invalidation implies too much risk for your position-size rules, reduce size or skip the trade — don't move the stop closer instead.
• Never widen a stop after entry to avoid being right about being wrong.

Example

You buy a breakout above a resistance zone at $50 with the thesis that the zone now acts as support. Technical invalidation is a close back below $48 (inside the old range) — that's your stop, not an arbitrary '2% below entry.'

Checklist

• I defined the specific technical condition that invalidates the trade before entering
• My stop sits at that technical level, not a round percentage
• If the technical stop implies too much risk, I resized rather than moved the stop
• I have not widened this stop after entry

Common mistakes

• Setting stops at round percentages disconnected from the chart
• Moving a stop further away after the trade goes against you
• Using a stop so tight it doesn't match the setup's actual invalidation
• Entering trades where you never defined invalidation at all