How to set a stop-loss: plan the exit before the entry

Why decide the stop first

The moment a position is open, the urge to wait "just a bit longer" begins. Decide the stop before entering and send it with the order as a stop-loss.

Three ways to place it

1. By the chart: for a buy, just below the recent swing low; for a sell, just above the recent swing high. It is the level that proves your idea wrong. Leave room for the spread.
2. By volatility: use ATR (average true range) and set the stop at 1.5 to 2 times it, so normal swings do not hit it.
3. By money: cap the loss per trade at 1 to 2% of the account. If the stop must be wide, reduce the size. The maths is in lot size calculation.

Is "10 pips" a good stop?

A fixed pip count is simple but means different things on different instruments and hours: 10 pips on gold is not 10 pips on USDJPY, and London moves more than Tokyo. Chart levels plus a money cap are more consistent.

Not getting stopped out by noise

• Check the stop is outside the normal swing range.
• Match the stop to the timeframe you entered on.
• Avoid new entries just before major data; spreads widen and stops slip.

What not to do

• Move the stop further away once the trade is losing.
• Add to a loser to lower the average price instead of stopping out.
• Trade without a stop because you will "keep an eye on it".

Trailing stops

A trailing stop follows price as it moves in your favour. In MT4 and MT5 it only works while the desktop terminal is running; close the terminal and it stops trailing. In cTrader it is managed on the server. Test the behaviour on a demo first.

Weekend gaps

If Monday opens far from Friday's close, a stop can be filled beyond its level at a worse price. Reduce size or close before the weekend if a gap would hurt.