Where should I put my stop loss?

Behind a level that would prove your trade idea wrong, such as the last swing low for a long trade, plus a small buffer based on the average true range.

What is a good risk-to-reward ratio?

Many traders aim for at least 1:2, so that they can be wrong more often than right and still make money.

Blog / Risk

Stop Loss and Take Profit: Where to Place Them

How to place a stop loss and take profit using structure, volatility and reward-to-risk, with worked examples and common mistakes to avoid.

Why every trade needs both

A stop loss defines the most you can lose on a trade. A take profit defines where you plan to take the gain. Without a stop, one bad trade can wipe out many good ones. Without a target, you decide in the heat of the moment, which is when emotions hurt you most.

Place the stop where the idea is wrong

The best stop is behind a level that would prove your idea wrong, such as beyond the last swing low for a long trade or beyond the last swing high for a short. Add a small buffer, often a fraction of the average true range, so normal noise does not stop you out.

Do not choose the stop to fit a position size you like. Choose the stop from the chart, then size the position to fit the stop.

Use volatility to size the buffer

The average true range (ATR) shows how far the market normally moves. A stop that is much tighter than the ATR will be hit by noise. One that is far wider than needed makes the reward-to-risk poor. Many traders use a stop between one and three ATRs depending on the timeframe.

Set the take profit with reward-to-risk

If you risk one unit, aim for at least two. At a 1:2 ratio, you can be right less than half the time and still make money. Place targets at logical levels such as the previous high, a support or resistance zone or the edge of a value area, instead of an arbitrary number.

Common mistakes

Moving a stop further away to avoid being stopped out turns a small loss into a large one. Placing the stop at an obvious round number invites stop hunts. Taking profit too early on every trade while letting losses run destroys the average win-to-loss ratio.

Practise it

On the ScaleEdge chart you can add a stop loss and take profit to a trade with one tap and drag them to the level you want. Practising with virtual money builds the habit.

Key takeaways

Place the stop where your idea is proven wrong.
Size the position from the stop, not the other way round.
Aim for at least 1:2 reward-to-risk.
Never widen a stop to avoid a loss.

FAQ

Where should I put my stop loss? Behind a level that would prove your trade idea wrong, such as the last swing low for a long trade, plus a small buffer based on the average true range.
What is a good risk-to-reward ratio? Many traders aim for at least 1:2, so that they can be wrong more often than right and still make money.

Educational content, not financial advice.