 What's up guys and gals? We're back for another episode of Trading Basics. This is episode 5 and today We are going to talk about stop losses All right, so the first thing we're going to talk about today is defining risk Risk levels can be based on two aspects. They could be based on a price aspect or they could be based on a time aspect Okay, so if it is price based It's going to be a price level that if broken invalidates your trade thesis This could be a higher high or a lower low or any movement in price that is not as you have predicted so this 414 level 475 609 levels these are price-based Risk levels that you could use whether you're trading this long or short Next we're going to talk about sizing based on your risk so You can have a max dollar loss Okay, the max dollar loss could be that you want to only risk $50 per trade So that means that if you have a 50 cent risk You're going to divide your dollar risk that you want to risk per trade So you take 50 cents divided by $50 and that equals a Maximum size of a hundred shares that way when you enter the trade You're going in with a maximum of a hundred shares because you know if you stop out you're only going to lose 50 bucks Modern Rock has a great Quote here is having a max dollar loss having a max loss doesn't mean taking your max loss on every losing trade That means that your max daily dollar loss should be different from your max dollar loss per Trade which is exactly what I've explained there the mental stop is Mentally saying yourself saying to yourself that if this price breaks a certain level you're going to exit your position for a loss But again, what if you don't? What if you decide to hold this position and it continues to run against you because you chose a mental stop Rather than a hard stop Mental stops are for the more disciplined traders So They're a common practice for discretionary traders, but again, they're very dangerous for the undisciplined or the new trader That just doesn't know themselves yet Stubbornness lack of discipline hope These are all emotions that if you struggle with them you should not be using mental stops You should in turn look to hard stops