I bought a dip once with a clear plan: entry, target, done. What I didn't have was an exit if I was wrong. Price kept falling, and every new low came with a new story about why it would turn.
By the time I sold, the loss was three times what it should have been. The trade didn't fail because the idea was bad. It failed because I never decided what bad looked like.
Entry and target are the easy half
Ask most traders about a position and they'll give you two numbers. Where they got in. Where they hope it goes.
The third number is the one that matters. The price at which the thesis is dead. Not the price where it hurts, the price where you were wrong.
Those are different things. A stop placed where the loss feels tolerable is a pain limit. A level where the reason for the trade no longer holds is an invalidation point. The first protects your mood. The second protects your logic.
Why it has to be written before the entry
Here's the thing about being in a trade. Once you own it, your brain starts working for the position. Every candle gets read as support for staying. A lower low becomes a better price. A broken level becomes a fakeout.
Say you buy at 100 because you think a support at 95 will hold. That's the whole thesis. If 95 breaks on a daily close, the thesis is gone. Write that down before you click buy, and the decision is already made. You're just carrying it out.
Without it, you'll make the decision at 93, with a loss on the screen, and your judgment will be the worst it's been all week.
The size math behind it
Naming the level also tells you how much to buy. If your entry is 100 and invalidation is 95, you're risking 5 per unit. Risk 1% of a $20,000 account, which is $200, and the position is 40 units.
Skip the invalidation step and you size by feel. Feel tends to say "a decent chunk", and a decent chunk with no exit can turn a 5% mistake into a 25% one. Same idea, wildly different outcome. The only thing that changed was a number written in advance.
What most people get wrong
The common mistake is treating the stop as a suggestion. They set it, then drag it lower when price gets close. That's not risk management. That's renegotiating with the market while losing.
The other mistake is setting invalidation so tight that normal noise hits it. If a stop sits inside the typical daily range, you've built a machine for taking small losses. I think this one gets less attention than it deserves. Your invalidation level should sit where the idea is truly wrong, then you adjust size to fit it, not the other way round.
Think about the last trade you held too long. Did you know, at entry, the exact price that would have told you to leave? If the answer is no, that's the gap. It's the cheapest one to close, and it costs nothing but a minute of honesty.
One habit to take from this
Before every entry, finish this sentence in your journal: "I'm wrong if price closes below ___." If you can't fill the blank, you don't have a trade yet. You have a hope.
Then check your size against that blank. If the loss at that level is more than you can accept, cut the size. Don't move the level.
It sounds almost too simple. In my experience, the simple rules are the ones that survive a bad week. We build this into every strategy we run at v33 Systematic, and the rules and backtest assumptions are laid out at v33systematic.com.