Stop loss and take profit: where to place them
A stop loss is not an arbitrary number: it is the price that proves your idea was wrong. The take profit is a reasonable place where the market could stall.
Where to place the stop loss
- Behind structure: below the last relevant low on a buy, above the last relevant high on a sell.
- With room for noise: between 1 and 3 times the ATR (average true range) of the timeframe you trade.
- Never on exact round numbers, where orders cluster.
Where to place the take profit
- At the next resistance (buys) or support (sells).
- At Fibonacci extensions (127.2% or 161.8%) in trends.
- At a distance that offers at least 1.5 times the risk.
The stop-too-tight problem
If price regularly tags your stop and then reaches your target, your stop sits inside normal market noise. Widening it and reducing position size keeps the same dollar risk with a better chance of success.
Frequently asked questions
Should I move my stop loss?
Only in your favour (for example to break-even). Moving it against you turns a controlled loss into an uncontrolled one.
What is ATR?
The Average True Range measures the average size of recent candles; it helps you adapt your stop to current volatility.