One of the most dangerous clichs in trading is that how much you risk is a matter of personal preference — akin to whether you like your meat medium rare or medium, or your martinis straight up or on the rocks.

Have you ever listened to an industry speaker or author conclude a discussion of a trade setup with the advice that you always need to place a stop to protect yourself? When asked where that stop should be placed, the answer is often something like, "Risk is a matter of personal preference." Every trader must determine what he or she is comfortable risking.

In case you didn’t hear the thump, that was somebody punting. Most likely, the person a) doesn’t have a clue where the stop should be placed, or worse, b) knows that virtually any stop will hurt the strategy’s performance and doesn’t want to tell you that.