A stop loss (SL) is an order that automatically closes your position when the price reaches a specified level, limiting your maximum loss on a trade.

How It Works

  1. Open a buy position at 1.0850
  2. Set stop loss at 1.0800 (50 pips below)
  3. If price drops to 1.0800 → position closes automatically
  4. Maximum loss: 50 pips × pip value

Setting Stop Losses

Method 1: Fixed Pips

  • Set SL at X pips from entry
  • Simple but ignores market structure

Method 2: Support/Resistance

  • Place SL below support (long) or above resistance (short)
  • Based on actual market levels

Method 3: ATR-Based

  • Use ATR indicator for volatility-adjusted stops
  • SL = Entry - (ATR × multiplier)
  • Adapts to market conditions

Types

Type Description
Regular Stop Closes at best available price
Guaranteed Stop Closes at exact price (fee applies)
Trailing Stop Moves with price to lock in profits

Golden Rules

✅ Always use a stop loss — no exceptions ✅ Set SL before entering a trade ✅ Don’t move SL further away (increasing risk) ✅ Consider moving SL to breakeven after profit