Intermediate · Lesson 7 of 11 · 8 min read
Stops and targets
Where you put your stop loss and take profit can matter as much as where you get in. Here is how to place both sensibly, and how to manage a trade once it is moving.
Decide both before you enter
Your stop is the price that proves the trade idea wrong. Your target is where you expect the move to run out of steam. Deciding both before you click buy or sell stops emotions making the choice for you.
Place the stop where the idea is wrong, then work out the position size from it. Never move the stop further away to “give it room” once you are in.
Where to put the stop
| Method | How | Good for |
|---|---|---|
| Beyond the swing | Just past the last swing low (for a buy) or swing high (for a sell) | Most trades: it is where the chart says you are wrong |
| Beyond the level | On the far side of the support or resistance zone you are trading from | Bounces from key levels |
| ATR-based | About 1.5 to 2 times the ATR away from entry | Keeping the stop outside normal noise |
Leave a little extra room for the spread, and avoid putting stops exactly on obvious round numbers where many others sit.
Setting targets
- The next level: the nearest support or resistance in the way of your trade.
- R multiples: aim for at least 1.5 to 2 times what you risk (1.5R to 2R).
- Measured move: for patterns, a target the same size as the move before the pattern.
Managing the trade
Many traders take part profit at the first target and move the stop to their entry price, so the rest of the trade cannot lose. A trailing stop then follows price, locking in more profit as the move continues. Tools such as Parabolic SAR, Supertrend and the Adaptive Trailing Stop are built for this.
You want to buy EURUSD at 1.0850. The last swing low is 1.0822 and ATR is 15 pips. You put the stop at 1.0815, just under the swing with a small buffer: 35 pips.
You risk £20, so your size is about £0.57 a pip. The next resistance is 1.0920, 70 pips away: a 2R target. At 1.0885 you take half off and move the stop to 1.0850. Worst case now: a free trade.
Common mistakes
- Moving the stop further away when price gets close to it.
- Stops so tight that normal wiggles knock you out.
- No target at all, then giving back a good profit.
- Always grabbing tiny profits while letting losses run to the full stop.
Check yourself
1. Which comes first: position size or stop placement?
Stop placement. The size is worked out from it.
2. ATR is 20 pips. Roughly where might an ATR-based stop go?
About 30 to 40 pips away (1.5 to 2 times ATR).
3. You take part profit at the first target. What do many traders do with the stop?
Move it to the entry price, so the rest of the trade cannot lose.
Try it on BTM
For education only, not financial advice. Trading carries a high risk of losing money, especially with leverage. Only trade with money you can afford to lose.
For educational purposes only. Nothing here is financial advice. Past performance does not guarantee future results, and trading carries a high risk of losing money, so only trade with money you can afford to lose. Read the risk warning.