Who it's for — Anyone who exits manually too late or too early — and wants automatic exits tied to plan, not moment emotion.
A stop-loss closes the position if price moves against you beyond a threshold. A take-profit closes at a preset gain target. Both remove emotion from exit — if you respect them and do not move them for anchoring or loss aversion.
In plain terms — Stop = «exit if I lose too much». Take profit = «exit if I've gained enough». Rules written before entry.
Types and logic
| Order | Function |
|---|---|
| Stop-loss | Cap maximum loss |
| Take-profit | Realize gain at target |
| Trailing stop | Stop follows favourable price |
Logical placement: below support (long) or above resistance (short); ATR multiple vs volatility; setup invalidation — not arbitrary percentage alone.
Common mistake — Moving the stop «to give it room» — you erase calculated risk/reward and amplify potential loss.
Example — Long at €50, stop €47 (−6%), target €56 (+12%): R/R 1:2. Touch €47 → auto close, no «wait for break-even».
Summary card
- Stop: capital protection / invalidation.
- Target: realization or trailing.
- Caution: gaps and slippage beyond stop.
Operational limits
- Gaps — fill may be worse than set level
- Whipsaw — stops too tight on volatile issues
- Fixed take-profit — locks gain but may cut long trends; alternatives: active management, partial exit