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Your First Stop-Loss and Take-Profit: Decide the Exit Before You Enter

Every trade needs two exits planned before you open it: one for when you're wrong and one for when you're right. What they are, where to put them simply, and the dollar maths of one trade.

Written By

Karolina Hansen

Updated 26/10/2026 · 6 min read

ForexGold

Key Takeaways

A stop-loss closes your trade automatically at a loss you've chosen. A take-profit closes it automatically at a profit you've chosen.
On a buy, the stop goes below your entry and the take-profit above. On a sell, it's the other way round.
Put your stop where the trade idea is clearly wrong, then pick a lot size that makes that loss an amount you can accept.
You can move a stop to reduce risk. Moving it further away to avoid a loss is the habit to avoid.

Most new traders spend their energy on the entry. Where to buy, when to sell. The exits get much less thought, and that's backwards. Your exits decide how much you lose when you're wrong and how much you make when you're right. I'd set both before every trade, and I'd do it before clicking anything.

What a Stop-Loss and Take-Profit Are

Stop-loss

Your exit if you're wrong

An order that closes the trade at a price you set
Caps the loss on the trade in normal conditions
Works even when you're away from the screen

Best for: Every trade, without exception

Take-profit

Your exit if you're right

An order that closes the trade at your target price
Locks in the gain without you watching
Stops you from hoping for more and giving it back

Best for: Trades with a clear target

Order	Buy trade	Sell trade
Stop-loss goes	Below your entry	Above your entry
Take-profit goes	Above your entry	Below your entry
You profit if price	Rises	Falls

Where to Set Them, Simply

Start with the stop, because it decides your risk. A simple way to place it is just beyond the most recent swing low on a buy, or the most recent swing high on a sell. If price gets past that point, the reason you entered has probably gone. Then leave a little room for the spread, so a normal flicker in price doesn't close you out.

For the take-profit, look for the next obvious level in your direction, such as a recent high on a buy. Many traders also check that the target is at least as far from entry as the stop, so a winning trade is worth more than a losing one. That's a common starting point, not a rule you have to follow.

Find where the idea is wrong

Mark the recent swing low (buy) or swing high (sell). Your stop goes just beyond it.

Find a sensible target

Mark the next clear level in your direction. That's your take-profit.

Size the trade to the stop

Work out what the stop distance costs at different lot sizes and pick the one you're comfortable losing.

Set both on the order

Enter the stop and take-profit on the order itself, so they're live the moment the trade opens.

Don't pick the stop by the dollar amount and then look for a place on the chart to put it. Choose the price level first, then adjust your lot size so the loss is acceptable.

The Dollar Maths of One Trade

Take a simple buy on gold. Gold is around 4,000. You buy 0.10 lots at 4,000, put your stop at 3,990 and your take-profit at 4,020. One standard lot is 100 ounces, so on 0.10 lots every $1 move is worth $10. The stop is $10 away and the target is $20 away.

Buy 0.10 lots of gold at 4,000: the two planned outcomes

Take-profit hit at 4,020+$200

Stop-loss hit at 3,990−$100

Illustrative example. $10 per $1 move on 0.10 lots. Spread and commission not included, and a stop can be filled at a worse price in fast markets.

Same chart, same stop and target, different size. The stop distance doesn't change. What changes is how much each dollar of movement is worth.

Loss if the $10 stop is hit, at different lot sizes

0.01 lot−$10

0.05 lot−$50

0.10 lot−$100

0.20 lot−$200

Illustrative example. Loss = stop distance in dollars × value of a $1 move at that size.

This is why the stop comes first. Once you know the distance, choosing your size is just picking the row you can live with.

Moving the Stop: One Direction Only

Once a trade is open, you can move your stop. Moving it closer to price, or past your entry to break-even, reduces what you can lose. Moving it further away increases it. The second one usually happens when a trade is going against you and you don't want to take the loss. It feels like giving the trade room. In practice you're risking more than you planned on a trade that's already proving you wrong.

Worst case on the same 0.10 lot trade

Original stop at 3,990−$100

Stop widened to 3,980−$200

Stop moved to break-even at 4,000$0

Illustrative example. Costs not included.

Moving the stop closer (fine)

Reduces your worst-case loss
Can protect a trade that's moved well in your favour

Moving the stop further away (avoid)

Doubles or triples the loss you planned for
Usually done out of hope, not because of the chart
Makes your results impossible to measure honestly

Moving to break-even too early has a cost of its own. Normal swings will close a lot of trades at zero that would have gone on to target. Decide your rule for it in advance and write it in your plan.

Before You Click Buy or Sell

I know where my stop-loss goes and why.
I know where my take-profit goes and why.
I've worked out the dollar loss if the stop is hit, and I'm fine with it.
Both are set on the order, not in my head.
I've checked the economic calendar for big news in the next hour.
I'll log the trade in my journal, win or lose.

Stop distance, target distance and what they mean for your win rate, all on one sheet.

Download the free Risk-to-Reward Cheat Sheet

Log your first trades in the journal, build a daily plan and carry on with the next lessons in your free dashboard.

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Frequently Asked Questions

Yes. Without one, a single bad move can take a large part of your account, and you'll be deciding when to get out while under pressure. A stop decides that in advance.

In fast markets, especially around big news, price can jump past your stop and the order fills at the next available price. That's called slippage. Smaller size and avoiding major releases help limit the damage.

Not always. Some traders close manually or trail their stop. When you're starting out, a fixed take-profit is simpler and stops you from changing your mind halfway through a trade.

There's no single right distance. Place it where your trade idea would be clearly wrong on the chart, then choose a lot size so that the loss at that level is an amount you're comfortable with.

Educational content only, not financial advice. Trading involves risk, and past performance does not guarantee future results.

Continue learning

Price Action Trading: Reading the Chart Without IndicatorsThe basics of price action trading. How to read the market without indicators and base your decisions on what price is actually doing.

Also worth reading: Risk Management Basics: Decide What You Can Lose Before You Trade · What Is Liquidity in Trading?