Setting stop loss based on affordability makes good economic sense to protect your capital but it is not exactly a scientific approach. A better approach would be to use technical support and resistance levels to set a stop loss. So if you are long on the stock then you set the stop-loss slightly below the next support. If you are short on the stock then you set the stop-loss slightly above the next resistance level. This small gap is provided to take care of spikes in volatility. Technicals are based on empirically proven charts which observe long-term patterns and bet on these patterns repeating. While they are not exactly fool-proof, they offer a good starting point.