Loss aversion and the stop that is too tight

[Amanhasnoname]

Loss aversion means a loss hurts roughly twice as much as an equal gain feels good. For scalpers it can produce stops that are far too tight, chosen to minimize the pain of being wrong.

A 1 pip stop on a pair with a 0.8 pip spread and normal noise of 3 pips triggers constantly. The result is a string of small losses, each one hurting little, but together they add up to a large drain.

The logic of a stop should come from the market's behavior, not from comfort. The distance needs to sit beyond normal noise for the setup, with the position size adjusted to keep the dollar risk acceptable.

A way to find the right distance is measuring how far price typically moves against winning trades before working. A stop just beyond that distance preserves the winners.

Smaller size with a more sensible stop is better than larger size with a stop that gets hit by noise.

How was the stop distance determined, and was it ever too tight?