How to set stop loss and take profit
Learning objectives
Attach a stop loss and take profit at entry, and modify them safely afterwards
Explain the difference between setting a level as a price and as a distance, and which is safer
Recognise the four platform errors that leave a position unprotected without you noticing
A quick recap...
Back in our Risk Management course,we covered where stop loss and take profit belong.
This lesson is about getting those two levels onto the platform, correctly, every time.
Add them at entry
There are two moments you can set a stop and target: in the order ticket as you open, or by modifying the position once it exists.
Set them at entry whenever your platform allows it. Adding them afterwards creates a window, however brief, in which you hold a live leveraged position with no protection on it. That window is usually seconds. It occasionally isn't, because the phone rang, the platform lagged, or the price moved and you started watching instead of acting.
Some instruments and some platforms don't permit stops in the ticket and require you to modify the open position. Fine, but know in advance which category you're in, so the extra step is planned rather than discovered.
Price or distance?
Platforms let you express these levels two ways: as an absolute price, or as a distance from your entry.
Absolute price. Your invalidation level is 1.0825, so you type 1.0825. Unambiguous. The level is where you decided it should be, regardless of what happens to your fill.
Distance. You specify 25 pips, and the platform calculates from your actual fill.
The difference matters when your fill isn't where you expected. If you intended to enter at 1.0850 but slipped to 1.0854, a 25-pip distance puts your stop at 1.0829 rather than 1.0825, quietly moving it away from the level that actually meant something.
Use price when the level matters, which is most of the time. Distance is reasonable for trailing stops and for systematic approaches where the distance itself is the rule. It's a poor default for a stop that was derived from the chart.
Checking the direction
The most common platform-level error is setting a stop on the wrong side of entry. Stop above entry on a long. Target below.
Most platforms reject this. Not all reject it clearly, and on some the rejection is quiet enough to miss in a hurry.
The check takes three seconds and it never changes:
- Long: stop below entry, target above.
- Short: stop above entry, target below.
Read it before you confirm. Every time, including the times you're certain.
Minimum distance rules
Brokers set a minimum distance from the current price within which stops and targets can't be placed. Set one closer and the order is rejected, sometimes with a message you'll see and sometimes with one you won't.
This connects to lesson D1.4. A stop placed inside the spread was never meaningful anyway, because the bid would have to reach it before the price had moved at all. The minimum distance rule is partly the broker preventing an order that couldn't work.
If a stop keeps getting rejected, the answer isn't a workaround. It's that the stop is too close, and lesson F2.2 explains why that was going to cost you regardless.
Modifying afterwards
The rule from our Stop Loss lesson applies without exception: tightening is fine, widening isn't.
One practical warning about the interface. Many platforms let you drag a stop level directly on the chart, which is fast and convenient and works identically in both directions. The least deliberate action available to you is also the most dangerous one, and it requires no confirmation.
If your platform supports drag-to-modify and you know that widening stops is a weakness of yours, consider modifying through the dialog box instead. The friction is the point.
Four ways to end up unprotected
- Opened intending to add the stop, then didn't. The single most common. Prevented by attaching at entry.
- Set as a distance after a slipped fill. The stop is attached, and it's in the wrong place. Prevented by using absolute prices.
- Rejected by minimum distance and not noticed. The position opened, the stop didn't. Prevented by verifying afterwards.
- Added to the position without recalculating. The stop level is unchanged and still valid, but the money at risk behind it has grown with the position size. Prevented by treating any addition as a new sizing calculation under lesson F2.3.
Note that in three of the four, everything looks normal on screen. That's what makes verification worth the ten seconds.
Verify, don't assume
After opening any position, look at the row in your open positions list and confirm the stop loss and take profit columns contain the numbers you intended.
Not that they contain something. That they contain the right something.
Ten seconds per trade, and it catches every one of the four failures above.
Key takeaways
Attach stops and targets in the order ticket wherever possible. Adding them afterwards leaves a window with an unprotected leveraged position
Set levels as absolute prices rather than distances, so a slipped fill doesn't quietly move a level you derived from the chart
On a long the stop sits below entry and the target above. Reversed for a short. Check it before confirming, every time
Three of the four ways to end up unprotected look completely normal on screen, which is why verifying the open position row is worth ten seconds