Ask any blown-up trader what destroyed their account and you will get one of two answers: "I moved my stop loss when it was about to get hit" or "I never used one." There is no third answer. The stop loss is a contract you make with yourself before entering — proof that you have decided in advance exactly how much you are willing to lose. Break that contract once and you are no longer trading. You are gambling.
A stop loss is a pre-set price level that automatically closes your trade if price moves against you, limiting your loss to the amount you planned. A take profit closes your trade when price reaches your target. Together they define the risk-reward ratio of every trade before you enter.
Where to place your stop loss
Stops must be placed at technically meaningful levels — not distances that fit your budget.
1. Below/above support or resistance — if buying, stop below the support you need to hold. If that level breaks, the trade idea is wrong.
2. Below/above a recent swing high/low — stops behind structure protect against normal movement while invalidating the trade if structure fails.
3. ATR-based stops — use the Average True Range at 1.5× for pairs with erratic behaviour.
Setting take profit
Take profit should be at the next significant resistance (for buys) or support (for sells). The key ratio:
- Minimum: 1:1.5 R:R
- Professional standard: 1:2 to 1:3 R:R
EUR/USD buy setup at key support:
Entry: 1.0850 · Stop: 1.0810 (40 pips below support) · Target: 1.0930 (80 pips, next resistance)
R:R = 1:2
Even if this setup wins only 45% of the time:
Expectancy = (0.45 x 80) - (0.55 x 40) = 36 - 22 = +14 pips per trade average
Over 100 trades: +1,400 pips expected profit.
NGX parallel: Buying GTCO at ₦45.00 with target ₦50.00 and stop ₦43.00:
Risk = ₦2, Reward = ₦5, R:R = 1:2.5.
Shares from risk budget: risking ₦15,000 → 7,500 shares (₦15,000 / ₦2 per share).
Stop and target set before execution, never after.
Moving the stop loss further away when price approaches it "to give the trade more room." Once you enter a trade, the stop is sacred. Moving it against your position is how a planned 30-pip loss becomes a 150-pip loss. Write this rule: I will never move a stop loss against my position. Full stop.
Set stop loss and take profit as hard orders in your platform the moment you enter the trade. Not mental notes — real orders. Hardware stops survive internet outages, power cuts, and the critical moment when you are not at your screen. In Nigeria, with variable power supply, this is not optional advice.
Set your stop at the level where your trade idea is proven wrong, your take profit at the next meaningful technical level, and never touch either order once the trade is live.
