Stop-loss and take-profit
Lesson 9 of 16 in the course “Futures from Zero”. Free, with animations and a quiz.
A seatbelt and a finish line
A stop-loss (SL) is the price where the trade closes itself if it goes against you. It’s a seatbelt: a small loss instead of liquidation. A take-profit (TP) is the price where the trade closes itself in profit. You set both when you open. Then you don’t have to sit at the screen, and the decision is made with a cool head, before emotions kick in.
Stops go by the chart, not by money
A common mistake is setting a stop like “I don’t want to lose more than $10”. The market doesn’t care how much money you have. You put the stop where the trade idea stops working: say, beyond the last low if you bet on a rise. Then you fit the position size so the loss at that stop is acceptable. We’ll do the maths in the 1% rule lesson.
Don’t move the stop away
The price nears the stop and a thought pops up: “I’ll move it a bit, it might turn.” That’s how most blown-account stories start. Moving the stop away means raising the bet on an idea that already failed. The rule is simple: a stop only moves towards profit, say to breakeven once the price is halfway to the take. Never the other way.
Check yourself
- Why set the stop-loss right when you open?
Correct answer: The decision is made calmly and the loss is capped in advance. When the price is already going against you, it’s tempting to hope and wait. A stop set in advance protects you from that. - Nika bets on a rise. Where does the stop make most sense?
Correct answer: Just below the last low, where the idea breaks. The stop answers “where am I clearly wrong”. Money is handled by position size, not by where the stop is. - The price is one step from the stop. What’s the right move?
Correct answer: Leave the stop where it is. Stops only move towards profit. A small planned loss beats a big unplanned one.