The publicly described stop rule
In the breakout section of his three-setups article, Kullamägi describes the entry as the opening range high and the stop as always the low of the day. The episodic pivot section of the same article uses the same pairing: enter on the opening range high, stop at the low of the day. His later episodic pivot post repeats it and adds that if the 1-minute range is missed, a 5-minute or 60-minute high can be used instead.
The rule makes the stop a fact of the session rather than an opinion. One way to read it: a breakout that is genuinely working should not need to trade back through the low it set on the day of entry. If it does, the idea has failed on its own terms.
The ADR and ATR cap
The low of the day is not accepted at any distance. The three-setups article says the stop should not be wider than the stock's Average True Range (ATR) or Average Daily Range (ADR), so the risk and reward stay in proportion. Its examples: with an ADR of 5%, the stop should not be wider than 5%; with an ATR of 50 cents, not wider than 50 cents. The episodic pivot post phrases the limit as no more than 1x, or at most 1.5x, the ADR or ATR.
Low of the day
Where the stop goes: the session low at the time of entry.
Average Daily Range
The FAQ's definition: average daily high-to-low range in percent over the past 20 sessions.
The cap
Distance from entry to stop no wider than about one ADR or ATR.
The public FAQ gives the ADR formula used in TC2000: the average of each day's high divided by its low over 20 sessions, minus one, times 100. Use the same definition every time so that checks are comparable from trade to trade.
A worked example (ours)
The numbers below are this site's own illustration, not a trade from the source material.
- A $40 stock with an ADR of 6% moves about $2.40 on a normal day.
- It breaks the opening range high at $41.00. The low of the day so far is $39.20.
- Stop distance: $1.80, or about 4.4% of the entry. That is inside one ADR, so the trade passes the cap.
- With $200 of planned risk, the position is $200 / $1.80, about 111 shares, roughly $4,550.
Now change one number: the stock dipped to $37.50 before breaking out. The stop distance becomes $3.50, about 8.5% and well over one ADR. The size would shrink to 57 shares, but the bigger problem is the proportion: a stop that wide needs a much larger move just to earn the same multiple of risk. Under the cap, this one is a pass.
Hard stops and mental stops
The FAQ says both are used: hard stops when a stock is near the stop, so it does not have to be watched constantly, and market stops rather than limit stops. It also says stops are overridden only very rarely, and that traders who have not yet made a few million should not do it at all. A limit stop can be skipped in a fast move; a market stop accepts some slippage in exchange for getting out.
What to log on every stop
- Entry, low of the day and ADR at the moment of entry.
- Stop distance as a multiple of ADR.
- Whether the stop was hit, and the actual fill versus the planned level.
- For stopped trades: what the stock did over the next five sessions.
The last line keeps the review honest. Some stopped trades recover; the question is whether a different rule would have been better across the whole sample, not on the one trade that hurt. For sizing the position once the stop is set, see ADR position sizing.
The pre-entry stop check
- Note the ADR (20-session, in percent) before the open.
- At the trigger, read the low of the day.
- Compute the stop distance and compare it with one ADR.
- If it is wider, pass or wait for a new setup.
- Size the position from the fixed dollar risk.
- Place the stop as a market stop when price approaches it.