A stop loss is an order that closes your position when price reaches a level you chose in advance. It caps the loss on a trade under normal conditions. It does not guarantee that exact price, and no stop method guarantees a profitable trade. Leveraged forex and CFD trading can lose money fast, and a badly placed stop can make that faster.
The level comes before the lot size. You decide where the trade idea is proven wrong, then you size the position so that being wrong costs only what you planned to risk.
The core rule: the stop goes where your idea is wrong
A stop loss strategy is not about how much money you are willing to lose on a trade. It is about the price at which the reason for the trade no longer holds. If you bought because price held a support zone, the stop belongs beyond that zone. If price breaks through it, your reason is gone.
Many beginners place the stop at a round distance that "feels safe". That mixes up two separate decisions:
- Stop distance, which the market and your setup decide.
- Money at risk, which you decide through position size.
Keep them apart. Choose the level from the chart, then adjust the lot. Our pages on position sizing and risk per trade cover the second part in detail.
Structure-based stops
A structure-based stop uses visible chart points: swing highs and lows, support and resistance zones, trendlines, and the edges of patterns. See technical analysis and chart patterns if these terms are new.
- Long trade (buy): place the stop below the most recent swing low, or below the support zone the trade depends on.
- Short trade (sell): place the stop above the most recent swing high, or above the resistance zone.
- Breakout trade: place the stop back inside the range that price just left. If price returns deep into the range, the breakout has failed.
- Pattern trade: place the stop beyond the point that would cancel the pattern, such as the far side of a flag or the head of a head-and-shoulders.
Do not put the stop exactly on the swing point. Many traders see the same obvious level, and price often reaches it briefly before turning. Leave a buffer beyond the level. The ATR method below gives a consistent way to size that buffer.
The weakness of pure structure stops is that the nearest logical level is sometimes very far from entry. In that case the correct response is a smaller position or skipping the trade, not moving the stop closer to a level that means nothing.
Volatility-based stops (ATR)
ATR (Average True Range) measures how far an instrument typically moves per bar over a recent period. A volatility-based stop sets the stop distance as a multiple of ATR, so the stop widens when the market is moving a lot and tightens when it is quiet.
This matters because instruments behave very differently. A calm major pair on a quiet day and XAUUSD or NAS100 during an active session do not need the same stop distance. A fixed distance is too tight on volatile instruments and too loose on calm ones.
How traders usually apply it:
- Read the current ATR on the timeframe you trade.
- Multiply it by the factor you have tested for your setup.
- Measure that distance from entry, or add it as a buffer beyond a structure level.
The combined approach is common: the structure decides where, and ATR decides how much buffer. A larger multiple gives the trade more room and gets stopped out by noise less often, but each loss is larger in price terms, so the position must be smaller.
Use the calculator below to turn an ATR reading and a multiple into a stop distance and a position size for a fixed risk:
Fill in the empty fields to see the result.
Stop distance = ATR × multiple; size = money at risk / (stop in pips × pip value), rounded down to 0.01 lot.
More on this method is on the ATR position sizing page.
Time-based stops
A time stop closes a trade that has not done what you expected within a planned period, even if the price stop was never hit. You define the period before entry, in bars or sessions.
The logic: many setups are built on momentum. If price just drifts sideways, the reason for the trade is weakening while your capital and margin stay tied up. Holding positions overnight also adds swap costs (see swap fees) and exposure to gaps over the weekend.
A time stop works alongside a price stop, never instead of it. It is useful for intraday traders who do not want to carry positions into the close of their session, and for anyone who notices in their trading journal that stale trades tend to end badly.
Avoid stops inside the spread
The spread is the difference between the bid (sell) price and the ask (buy) price. In MetaTrader, charts show the bid price by default, and that causes a common mistake.
- A buy position closes at the bid. Its stop triggers when the bid reaches your level, which matches what the chart shows.
- A sell position closes at the ask. Its stop triggers when the ask reaches your level. The ask sits above the bid line on the chart, so a short-trade stop can trigger even though the chart candle never touched it.
What follows from this:
- For short trades, place the stop above the swing high plus the spread, not just above the high on the chart.
- Do not place stops so close to entry that normal spread width alone could reach them.
- Spreads often widen around news releases, at the daily rollover and in thin markets. A stop that is safe at normal spread can be hit when the spread widens. See trading news risks.
- You can turn on the ask line in the MT4 and MT5 chart settings to see where short stops actually trigger.
A stop is also not a fixed exit price. In a fast market or over a gap, the order can fill worse than your level. This is slippage, and it is part of the real risk of every trade.
Size the position after the stop is set
Once you know the stop distance, the position size follows from your balance and the amount you choose to risk. Enter all three here:
Fill in the empty fields to see the result.
Rounded down to 0.01 lot so the risk never exceeds your limit.
If the calculator gives a lot below the minimum your account allows, the stop is too wide for your risk limit on that trade. Skip it, or wait for a setup with a closer logical stop. Check the current minimum lot for your account in the Exness personal area or on the official site.
Ready to try it on a real or demo account?
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Worked examples
These examples describe the reasoning. For actual figures, put your own balance, risk and distances into the calculators above.
Long at support on a major pair. Price pulls back to a zone where it turned up before. The stop goes below the zone's lowest swing, with an ATR-based buffer beyond it. The lot calculator then gives the size for your chosen risk. If the zone is wide, the lot comes out small. That is correct, not a problem to fix by tightening the stop.
Short below resistance on XAUUSD. The stop goes above the recent swing high, plus a buffer, plus the spread, because the short closes at the ask. Gold's ATR is usually large relative to many currency pairs, so the ATR calculator will show a wider stop and a smaller position for the same risk. Spread details are on the XAUUSD spread page.
Breakout on NAS100 with a time stop. Price breaks out of a range. The stop goes back inside the range. You also decide that if price has not moved away from the breakout level within your planned number of bars, you close the trade. Index CFDs can move sharply at the cash open, so check that the stop is beyond normal opening swings.
Compare any target with the stop distance using the risk-reward ratio guide. A wide stop with a small target needs a high win rate to break even.
Common mistakes
- Moving the stop further away when price approaches it.
- Placing the stop at an obvious round number or exactly on a swing point.
- Using the same distance on every instrument and timeframe.
- Ignoring the spread on short trades.
- Choosing the stop from the money you want to risk instead of from the chart.
- Trading with no stop at all. The trading without stop loss page explains why this is risky.
Frequent questions
Where should I place my stop loss in forex?
Beyond the price level where your trade idea is proven wrong, such as below a swing low for a buy or above a swing high for a sell, with a buffer for noise and spread.
Is an ATR stop better than a structure stop?
Neither is better in all cases. Many traders combine them: structure picks the level, ATR sizes the buffer. Test what you use on a demo account and record results.
Should I move my stop loss to breakeven?
Moving it to entry removes the original loss but makes it more likely that normal pullbacks will close the trade. Decide your rule in advance and apply it consistently.
Why was my sell stop hit when the chart never reached it?
Sell positions close at the ask, while the chart shows the bid. A wider spread, often around news, can push the ask to your stop.
Does a stop loss guarantee my maximum loss?
No. In fast markets or over gaps the order can fill at a worse price than your stop level.
How do I set stop loss size in lots?
You do not set the stop in lots. Set the stop level from the chart, then use the lot calculator to find the position size for your chosen risk.