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Stop losses: your most important safety tool
A stop loss is an order that closes your trade at a price you choose in advance, so a bad trade can’t keep getting worse while you’re away.
How to place a sensible stop
- Put it where your trade idea is proven wrong — for example, just beyond a recent high or low — not at a random number.
- Then size the trade so that hitting the stop only costs your planned risk (see position sizing).
Take profit orders
The opposite of a stop loss: it closes your trade automatically at a profit target.
Things to know
- Slippage: In fast markets or weekend gaps, your stop can be filled at a worse price than you set.
- Don’t move it further away to avoid taking a loss. That’s how small losses become big ones.
- Trailing stops move along behind the price as it goes your way, locking in some gain.
Rule of thumb: never open a trade without knowing exactly where your stop loss goes.