Essential component of your trading system is your protective stop. This is the worst-case loss that you would want to experience and it defined by 1R (or your initial risk) for you. Your stop might be some value that will keep you in the stock for a long time (e.g., a 25% drop in the price of the stock) or something that will get you out quickly if the market turns against you (e.g., a 25 cent drop). Protective stops are absolutely essential. Markets don’t go up forever and they don’t go down forever. You need stops to protect yourself. Entering the market without a protective stop is like driving through town ignoring red lights. You might get to your destination eventually, but your chances of doing so successfully and safely are very slim.