Stop loss placement
Where to put a stop so it reflects your idea, not a round number.
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Lessons
- 01Why use a stop loss?A stop loss is an order that closes your trade at a price you set in advance if the market moves against you. It caps the loss in normal conditions, even while you are offline, and lets you size the position from a fixed risk. A gap or fast market can still fill it at a worse price.
- 02Ways to place a stop loss.There are four common ways to place a stop loss: a fixed distance in pips or percent of price, a multiple of volatility such as 2 × ATR, a level just beyond a swing high or low, and a time limit. Choose the stop first, then size the trade so the stop risks the money you planned.
- 03Trailing stops.A trailing stop is a stop loss that follows the price as a trade moves in your favour, staying a set distance behind it and never moving back. It shrinks the possible loss and locks in profit once it passes your entry, but it always gives back its distance from the peak and can fill worse after a gap.