How to Place a Stop Loss Order

Stop loss is one of the most important trading order types.

In this tutorial, I’ll go over what a stop loss order is, how to execute it, and I’ll answer some frequently asked questions at the end.

After you read this tutorial, you will know everything there is to know about entering a stop loss.

What is a Stop Loss Order?

All trading platforms I have seen have a stop loss feature.

Some are easier to use than others, but the basic function is the same.

A stop loss order is a type of order that traders use to limit their losses on a losing trade or lock in profits on a winning trade.

To be more specific, a stop loss is a pending order that can only be executed when the price hits your stop loss level.

A pending order is an order that sits on the broker’s server until the order conditions are met. In the case of a stop loss, that condition is the price hitting the stop loss price.

Once the price hits your stop loss price, it becomes a market order, which means it executes the trade at the next available opportunity.

That means there must be someone in the market willing to take the other side of your trade.

In very large (liquid) markets, the trade is usually filled quickly and at the price you set. Some examples of markets are large cap stocks, Forex and large cap cryptos like Bitcoin.

However, in small (illiquid) markets, the price at which your trade is finally executed may be different from the price you set at your stop loss. This is called slippage. Some common illiquid markets are options, micro cap stocks and altcoins.

If you are trading in an illiquid market, find out if you can enter a stop loss that will be a limit order instead of a market order.

A stop-limit allows you to set a limit price so that you don’t lose money if the only available trade is at a price worse than your limit price.

Not all trading platforms offer stop limit orders, so be aware of the potential downside before placing your stop loss orders.

Traders usually enter a stop loss at the same time they open a trade.

How to Set a Stop Loss to Limit Losses

The most common use of a stop loss order is to do as its name suggests.

This will limit the loss of your business.

In the chart above, the red line at the bottom of the chart represents a good place to enter a stop loss order for a long trade.

The trade will be entered at 0.63264 and the stop loss is at 0.61617.

If the price goes below 0.61617, then the long trade is closed.

A stop loss order allows a trader to automatically exit a trade at a predetermined loss amount, thereby protecting the remainder of their trading capital.

Many traders use a percentage stop loss that only risks X% per trade. The average risk amount per trade is 1%.

If you’re risking 1% per trade, you’d have to be wrong 100 times in a row to lose all your money.

Even if you’re just guessing, I don’t think you can be wrong 100 times in a row.

Therefore, using a stop loss protects your capital when you are wrong, so you can take advantage of the times when you are right.

How to Use Stop Losses to Protect Profits

You can also use stop loss to protect profits.

Let’s look at the same trade above, but this time, the price has moved to profit.

The blue line is the trade entry price and the red line is the new stop loss level.

To protect your profit, you can move your stop loss up to 0.63634, locking in 37.4 pips profit on the trade.

Moving your stop loss to lock in profit is a great way to make sure you make money on the trade, but also gives you a chance to make a profit. more money when the market locks in a strong trend.

No matter what happens, you’ll have peace of mind knowing you’ve locked in a guaranteed profit.

How to Place a Stop Loss Order on Popular Trading Platforms

Stop loss orders are usually easy to place.

All trading platforms allow you to place a stop loss when you enter a trade. After you enter a trade, you can also edit your stop loss, or enter one if you forgot.

I will give you some examples from different trading platforms, so you can see the process in action.

How to Set a Stop Loss in MetaTrader

The MetaTrader order entry screen has a stop loss field just below the volume field.

An easy way to enter a stop loss price is to first click on the up or down arrow next to the stop loss price.

It will automatically enter a price close to the current price. Then you can manually edit the price to set your stop loss.

Using this method saves you time and is especially useful for day traders who need to enter orders quickly.

The process is almost the same as in MetaTrader 5. If you want to learn how to set stop loss and take profit in MT5, read this tutorial.

How to set a Stop Loss in TradingView

TradingView has best stop loss screen I saw.

It allows you to set a stop loss in pips/dollars, at a certain price, or at a percentage risk.

To enter an order, right-click on any chart and click on:

Trade > Create a new order…

Then the order entry box will appear. Check the box next to it Stop the Loss and enter your stop loss in your preferred format.

Finally, click on Buy or For sale button and your order is placed.

How to set a Stop Loss on thinkorswim

TD Ameritrade there are a couple of different trading platforms that you can use, but I will show you the thinkorswim example because it is the simplest.

Entering a stop loss is a bit complicated on this platform, but it’s easy if you know how to do it.

While you are entering your entry order, click on the Advanced Orders > 1st trgrs OCO.

This will enter a stop loss order once your trade is filled.

To get a complete tutorial on how the platform works, watch this video.

It features an older version of the software, but the basic principles are the same.

?

Yeah, I don’t know why they make it so complicated.

But now you know how to do it.

How to set a Stop Loss on Binance

The process of setting a stop loss order in cryptocurrency can vary greatly by exchange.

In this example, I will show you how to use Binance because it is one of the most popular exchanges.

At Binance, you use the Stop-limit function.

Although this example will be shown on Binance, check your specific exchange on how to set a stop loss on your trading platform or exchange.

Here is a complete tutorial on how to place a stop loss on the Binance trading platform.

Where Should You Place Your Stop Loss?

Now that you know how to set a stop loss, this is the next question that new traders ask.

Knowing where to place your stop loss comes with practice.

You want to put it in a place where it won’t be triggered by normal market fluctuations.

But you also want to keep it as tight as possible to make the highest return on your trade.

It’s a balancing act.

To find out where to place your stop loss, read this tutorial.

Should You Move Your Stop Loss?

Moving your stop loss to increase your risk means that you will lose more than you originally planned.

That’s a recipe for disaster.

There is only one situation when you should move your stop loss…if you want to lock in profits.

How you do this is beyond the scope of this tutorial, but you can learn how to track a stop loss here.

If you track your stop loss, you can make more profit than you expected because you let your winners run and minimize your losses.

Are Brokers Looking for Your Stop Loss?

Legitimate, regulated brokers will not seek your stop losses.

Who knows what dodgy, unregulated brokers are doing.

That is why it is important to trade with a reputable broker.

But if you are trading with a reputable broker and you feel that your stop losses are missing, then this might be the reason.

Final Thoughts

If you know how to place a stop loss order in one market, you will know how to do it in other markets, although the process is not the same.

Using a stop loss on your trades is the best way to limit your risk and lock in your profits. If you have never used stop losses, then you should consider using them.

In all fairness, not all professional traders use stop losses.

There are also some trading strategies that work better if you don’t use a stop loss.

But most traders and trading strategies do better with stop losses.

So go backtesting and figure out the best way to place your stop loss orders.