Stop-Loss and Take-Profit: How to Set Them (With Examples)
How stop-loss and take-profit orders work, how to place them by risk and structure, common mistakes, and how they protect your place in a trading tournament.
A stop-loss (SL) closes your position when the price moves against you to a set level. A take-profit (TP) closes it when the price reaches your target. Together they turn a trade from a hope into a plan: you know the maximum loss and the target before you enter.
How they work
| Stop-loss | Take-profit | |
|---|---|---|
| Purpose | Cap the loss | Lock in the gain |
| Long position | Trigger below entry | Trigger above entry |
| Short position | Trigger above entry | Trigger below entry |
| Usual execution | Market order on trigger | Market or limit on trigger |
Example — long BTC at 60,000, SL at 58,800, TP at 62,400:
- Risk per unit: 1,200 (2%). Reward per unit: 2,400 (4%). Reward-to-risk: 2:1.
Setting a stop-loss
1. By structure. Place the stop where your trade idea is proven wrong — below a support level for a long, above resistance for a short — plus a small buffer.
2. By volatility. Use a multiple of recent average range so normal noise does not stop you out.
3. Then size the position to the stop, not the other way round:
Position size = (equity × risk %) ÷ stop distance %
With 100,000 equity, 1% risk and a 2% stop: 1,000 ÷ 2% = 50,000 position. See leverage in trading.
Setting a take-profit
- At the next obstacle: resistance for a long, support for a short.
- At a fixed reward-to-risk: 1.5:1, 2:1, 3:1.
- Partially: close half at the first target, move the stop to break-even, let the rest run.
Common mistakes
- Stops too tight — inside normal noise, so they trigger before the move.
- Moving the stop further away when price approaches it. That turns a planned loss into an open-ended one.
- No stop at all, "because I'm watching". Fast markets move faster than you click.
- Targets too close — a 0.5:1 reward-to-risk needs a very high win rate to be profitable after fees.
- Forgetting fees and funding — they shift your real break-even. See what is PnL in trading.
Stop-loss vs liquidation
A stop-loss is your exit; liquidation is the engine's exit when margin runs out. A stop well before the liquidation price keeps control with you. In a PnL World tournament this matters twice: a trader whom a liquidation leaves at 10% or less of the starting bankroll is marked Liquidated and ranks last.
SL and TP in PnL World tournaments
- Take-profit and stop-loss orders trigger on live prices; stop orders are available as stop market and stop limit.
- Market exits fill against the live order book; fees and funding apply as on an exchange.
- Max drawdown breaks ties between equal results — disciplined stops can be worth a place. See max drawdown explained.
- At the bell, any open position is counted as if closed at the mark price, including the exit fee.
FAQ
Should every trade have a stop-loss? In competition and in real trading, a defined maximum loss per trade is the base of risk management.
Stop market or stop limit for a stop-loss? Usually stop market: it guarantees the exit, while a stop limit may not fill in a fast move.
Where should I put my take-profit? At a level the market can realistically reach — often the next support or resistance — with a reward-to-risk that fits your win rate.
Can a stop-loss fill worse than its price? Yes. A stop market fills at the best available price after the trigger, which can slip in fast markets.
PnL World tournaments are simulated: trades are executed against live market data, but no real-money positions are opened on any exchange. Nothing here is financial advice.
Next: Market vs limit orders · Leverage in trading · How to win a trading tournament