What are stop-loss and take-profit

Updated: 7 November 2026

In short: A stop-loss is an order to close a trade at a loss if price reaches the level where the idea no longer holds. A take-profit is an order to close at a profit at a target chosen in advance. Both are set the moment you enter.

Where to put the stop

Not at an arbitrary "20 pips" but beyond the level whose break cancels the idea: beyond the extreme of the zone or swing. And not exactly where the crowd's stops are — price often takes those out before reversing.

Where to put the target

At the nearest pool of liquidity: just before equal highs or lows or a strong level. A reward-to-risk of 1:2 or better lets you make money even if half your trades lose.

Example: a stop by logic, not by amount

You buy from a 100–104 demand zone, entering at 102. The logical stop is below 100, say 99.5: if price gets there, the zone failed and the scenario is cancelled. The mistake is placing the stop "1 point below entry to risk less": normal noise will knock it out. The right order: first the stop location by logic, then the size for that stop.

Why stops so often get hit "right before the reversal"

Because people place them where everyone else does: right under an obvious low. Liquidity gathers there, and price often goes to collect it before turning. The fix: place the stop beyond the point where the scenario is truly invalid, with a small buffer, and look for the entry after the liquidity has been taken.

What never to do with a stop

Move it further away as price approaches — that is how a small loss becomes a big one. Trade without a stop, "I will close it myself" — in a sharp move you will not make it. Keep a "mental" stop. Move the stop to break-even too early — normal pullbacks will knock you out of good trades.