LEARN TO TRADE · Beginner · 7 min read · 3 Nov 2026 · Navion Pro Research
Stop Loss and Take Profit: How to Set an Exit Before You Enter
Most traders think hard about where to get in. Fewer decide in advance where to get out. A stop loss and a take profit settle both exits before the trade begins, while you are still thinking clearly.
Trading leveraged products carries a high level of risk to your capital. Losses can exceed deposits. Past performance is not an indicator of future results.
Key Points
- A stop loss closes a trade automatically if the price moves against you to a level you set.
- A take profit closes a trade automatically once the price reaches a gain you set.
- Setting both before you enter keeps your exits from being decided in the heat of the moment.
- Comparing the two gives your reward to risk, which tells you how often a strategy needs to be right.
What stop loss and take profit do
A stop loss is your exit if you are wrong. It is a stop order that closes the trade once the price moves through your level.
A take profit is your exit if you are right. It is a limit order that closes the trade once the price reaches your target.
Both sit on the platform while the trade is open, so they work even when you are not watching.
A trade with both exits set
This example is for illustration only. The prices are not real quotes.
- A trader buys 0.01 lot of gold, which is 1 ounce, at $3,900.
- They set a stop loss at $3,880. If it is hit, the loss is $20.
- They set a take profit at $3,940. If it is hit, the gain is $40.
- The possible gain is twice the possible loss. That is a reward to risk of 2 to 1.
Before costs, the trader knows the best and worst outcome before the trade even opens.
Three ways to choose a stop loss
| Method | How it works | What to watch for |
|---|---|---|
| A chart level | Place the stop just beyond a level the price has struggled to break, such as a recent low | Levels are not guarantees, and many traders may watch the same one |
| A fixed amount | Decide how much money you will risk, then work back to the price | The level may not match how the market actually moves |
| Normal price swings | Place the stop outside the range a price usually moves in a day or session | Wider stops mean a smaller position to keep the same risk |
Whichever method you use, the stop should sit where the reason for your trade would no longer hold.
Reward to risk: why the distance matters
Reward to risk compares what you could gain with what you could lose. It also tells you how often your trades need to win to break even, before costs.
| Reward to risk | Example | Wins needed to break even |
|---|---|---|
| 1 to 1 | Risk $20 to make $20 | 1 in 2 trades (50%) |
| 2 to 1 | Risk $20 to make $40 | 1 in 3 trades (33.3%) |
| 3 to 1 | Risk $20 to make $60 | 1 in 4 trades (25%) |
A higher reward to risk means you can be wrong more often and still come out ahead. But targets further away are reached less often.
When a stop loss may not fill at your price
A stop loss becomes a market order once your level is hit. In a fast market, or when a price jumps over your level, it fills at the next available price, which can be worse.
This happens most around big news and when a market reopens after a break, such as after the weekend. Our guide to price gaps explains why.
Common mistakes with exits
- No stop loss at all. Hoping a losing trade turns around while the loss grows.
- Moving the stop further away. Giving a losing trade more room turns a small planned loss into a large unplanned one.
- A stop too close to the price. Normal swings close the trade before the idea has had a chance to work.
- Closing winners early. Taking a small gain before the target while letting losses run to the full stop.
Risk disclosure: Trading involves significant risk of loss and is not suitable for all investors. Past performance is not indicative of future results. This brief is for information and education only. It is not investment advice, a recommendation or an instruction to buy or sell anything. The likely market reactions described here are our assessments of what could happen, not predictions, and markets can and often do move differently. Figures and forecasts come from third party sources and may change. Make your own decisions, and consider independent advice if you are unsure.
