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
- Open a buy position at 1.0850
- Set stop loss at 1.0800 (50 pips below)
- If price drops to 1.0800 → position closes automatically
- 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