foundations · TRADING LEARNING GUIDE
Know the exit before the entry
What is this concept?
Invalidation defines when a trading idea is wrong. A stop is an execution instruction. Stop-market fills can differ from the trigger; stop-limit orders may remain unfilled.
Step by step
Write the thesis and invalidation before entry. Use stop distance in sizing and allow for spread, gaps and slippage. Define acceptable loss before deciding to move an exit.
From observation to decision
Record the instrument, venue, session and timeframe. Classify the observation using the definition, then write at least one alternative interpretation. Decide what evidence would invalidate your idea before entry. Mark missing information explicitly. Examples are hypothetical. Collect paper observations, including failures. Include fees, spread, slippage and timestamp alignment when measuring outcomes. Recognizing a chart shape and establishing a profitable trading rule are separate tasks.
Worked example
Entry 100, stop 97 and ten units imply planned price risk of 30. A fill at 96.5 produces gross loss 35 before fees. Planned risk was not a guaranteed maximum.
Common mistakes and limits
Avoid assuming guaranteed stop fills, retaining size after changing stop distance or moving invalidation solely to avoid accepting loss.
Practice
Describe stop-market and stop-limit outcomes for one setup. Stress the account loss under a price gap.
Resources and further reading
These sources explain definitions and underlying mechanics. Worked examples are original illustrations; a source does not establish the profitability of a custom pattern.
Further reading / foundational context. Worked examples on this page are original illustrations, not source performance claims.