Last updated: 17 October 2026 · By Spencer Li, CFTe

Put your stop loss at the price where your trade idea is proven wrong, with a little room beyond it for normal noise. Put your take profit at the nearest price level where the move is likely to stall. And set them in a particular order: stop first, size second, target third.

The stop comes first because it decides how big the position can be. Divide what you are willing to lose by the distance from your entry to your stop, and that is your position size. Only then look at the target, and take the trade only if the target sits far enough away to pay for the risk, at least 2 times the distance to the stop as a working minimum.

The entry is simply the price where your setup triggers. If price has already run most of the way to the target by the time you notice, the maths no longer works, and the right entry is often no entry at all.

What are entry, stop loss and take profit?

They are the 3 prices that define a trade before you place it. Traders often shorten them to EP, SL and TP.

Each one answers a different question, which is why each needs its own reason. A stop placed “5% below, because that feels about right” has no reason behind it, and the market has no way of knowing it is there.

Why does the stop come first?

Because it decides the size, and the size decides the damage. Let me use one hypothetical example with round numbers.

A stock trades at 50 and your setup triggers there. The level your idea depends on sits just above 47, so the stop goes at 47, which is 6% below the entry. You risk 1% of your account on every trade. So the position is 1% divided by 6%, about 16.7% of the account. If the stop is hit, you lose 1%, exactly as planned.

Now look at the target. The closest level where sellers showed up before is around 56, which is 6 points above the entry, twice the 3-point distance to the stop. That makes it a 2R trade, where R is the amount you risked. Worth taking.

Do it in the other order and the plan starts to slip. Pick the position size first, by feel, and then the stop ends up wherever keeps the loss “comfortable”, which is usually too tight, inside the stock’s normal wiggle. The 2% money management rule for position sizing walks through the sizing step by step.

Where should the stop go?

Beyond the level that your trade depends on. If you buy because price bounced off support, the idea is wrong once price breaks back through that support, so the stop sits just below it. Placing it at a round percentage, or at an amount of money you would like to lose, ignores the chart completely.

A trader on r/technicalanalysis asked about the most common complaint in September 2026: “Stopped out at the exact high/low repeatedly.” He wanted to know if it was a known effect. It is a familiar pattern. One common explanation is that many traders put their stops at the same obvious spot, just past the last swing high or low, and a quick move into that cluster triggers them all before price turns.

So give the stop a buffer beyond the obvious level, sized to the stock’s normal daily range. A wider stop then means a smaller position, so the risk stays the same. The exact buffer and stop rules we use are part of what we teach in the course. The principle is the part that matters here: the stop marks where you are wrong, plus enough room that ordinary noise cannot reach it.

Do note one limit. A stop is an instruction to sell at the next available price. If the stock gaps through your stop overnight, the fill can be well below it, and the loss larger than planned.

If you want a daily routine for setting all 3 before you trade, the free 15-Minute Swing Trader’s Checklist is at the end of this post.

Where should the take profit go?

Near the closest level where the move is likely to pause: the last swing high for a long trade, or a resistance zone price has struggled with before. Put it slightly in front of that level, since the crowd tends to sell into it.

Then check the ratio. If the target is less than about 2 times as far away as the stop, many swing traders simply pass, because a strategy that wins half the time or less needs winners bigger than losers to come out ahead. How win rate and payoff trade off against each other is the whole subject of win rate versus reward-to-risk ratio.

A fixed target is only one way to exit. Some traders take part of the position off at the target and let the rest run behind a moving stop, and some exit when an indicator turns, which is the idea in using trading indicators to exit trades.

Where should the entry go, and is it ever too late?

The entry goes where the setup confirms, and not before. One of our students asked a question I hear in some form every week: “in your opinion is it too late already to enter with that set-up?”

The 3 prices answer it for you. Take the same hypothetical stock. Say you only notice it once it has already reached 53. The stop still belongs at 47, because that is still where the idea is wrong, and the target is still around 56.

Same stock, same chart, same idea. Chasing it turned a 2-to-1 trade into a 1-to-2 trade. So yes, it can be too late, and the ratio is how you tell. If the reward left on the table is smaller than the risk, the trade has already happened without you.

Personally, I think writing the 3 prices down before you click is the single most useful habit in trading. It moves every decision to the moment you are calm, which matters because cutting a loss in real time is hard for everyone, as the psychology of the stoploss explains. For the bigger picture, read why risk management is important in trading and the practical guide to money and risk management.

FAQ

Where should I put my stop loss?

Just beyond the level your trade idea depends on, plus a buffer for normal noise. For a long trade off support, that means a little below the support level.

How far should a stop loss be from the entry?

As far as the chart needs, and no closer. Then shrink the position so that hitting the stop still costs only your fixed risk per trade.

Where should I put my take profit?

Slightly in front of the closest level where price is likely to stall, such as a previous swing high for a long trade.

What is a good reward-to-risk ratio?

Many swing traders look for at least 2 to 1. The right minimum depends on your win rate, since a lower win rate needs bigger winners.

Why does my stop loss keep getting hit before price reverses?

Usually because it sits at the obvious level, where many other stops cluster. A buffer beyond that level, with a smaller position to keep the risk the same, is the common fix.

Go deeper

The free 15-Minute Swing Trader’s Checklist has the daily routine, the questions to ask before every trade, and the five rules that keep you in the game.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.

One price path, three trail widths, and the gap risk no order can fix

Published: 16 October 2026 · Last updated: 13 October 2026 · By Spencer Li, CFTe

“I can follow my stop-loss, but I keep exiting my winners too early.” That was the title of a recent thread on Reddit’s day trading forum, and it is the reason most people go looking for a trailing stop in the first place.

A trailing stop loss is a stop that follows the price as a trade moves in your favour, and stays where it is when the price moves against you. You set it as a percentage or a fixed amount below the market price, or above it if you are short. As the price climbs, the stop climbs with it. When the price falls back by that amount from its high, the stop is hit and the position is sold. So it locks in part of an open profit without you watching the screen all day. The catch is the width. Set it too tight and ordinary wobbles shake you out early, and set it too wide and you hand back a big slice of the gain before it fires. And like any stop, it does not promise you an exit price.

The rest of this post works through how it behaves on one price path, how to choose a width, and where it lets you down.

How does a trailing stop actually move?

The US Securities and Exchange Commission gives a clean example in its investor bulletin on stop orders. You buy a stock at $20. It rises to $22, and you place a sell trailing stop $1 below the market price. The price peaks at $24, so your stop rises to $23. Then the price turns down, and “your trailing stop price will remain at $23.” The shares are sold when the price reaches $23, “though the execution price may deviate from $23.”

Notice that the stop never moved down.

That one-way behaviour is the whole point, and I call it the Ratchet Rule. A ratchet only clicks one way, and a trailing stop should too. If you ever catch yourself loosening a stop because the trade is going against you, you have turned a protective order into a hope.

What happens with a tight, medium or wide trail?

Here is a hypothetical stock, in round numbers, bought at 50. Over the next few weeks it closes at 55, 52, 60, 56, 66, 59, 70 and 61. Watch what three different trails do with exactly the same path.

The 5% trail was shaken out on the very first pullback. It “protected” a small profit, and then the stock went on to 70 without it.

The 20% trail is still in the trade and caught the run to 70. But look at what it is willing to give back. From the peak of 70, the stock can fall all the way to 56 before the order fires, which is a fifth of the peak value handed back.

The 10% trail did best this time. Do note that I made this path up, so it proves nothing about 10% in general, and a different path would crown a different width. What the table does show is a trade-off that never goes away. A tighter trail keeps more of each small gain and misses most of the big moves. A wider trail catches the big moves and gives back more at the end of each one.

How wide should a trailing stop be?

So if no single number is right, how do you choose? The honest answer is that the width should come from how much that market normally moves, rather than from a round number that feels comfortable.

Suppose one stock swings 4% on an ordinary day. It will hit a 5% trail by accident within the week. A sleepy stock that moves half a percent a day could sit inside the same 5% trail for months. Same number, completely different meaning.

Traders usually set the width in one of three ways:

1. A fixed percentage or amount. Simple, and it is the version most broker platforms offer as a built-in order. Its weakness is the one above: it ignores volatility.
2. A multiple of the Average True Range. ATR measures how far a market typically moves in a period, so a trail of, say, 2 or 3 ATRs adjusts itself to each market. Our post on the Average True Range (ATR) indicator shows how it is calculated.
3. Under the last swing low, or under an indicator line. You move the stop by hand to just below each new higher low, or below a line such as a moving average or the Parabolic SAR. This follows the shape of the trend rather than a fixed distance. There are more ideas in using trading indicators to exit trades.

The exact exit rules we teach sit inside our course, because they only make sense next to the entry rules they belong to. The principle carries anywhere, though. Measure the normal noise first, then set the trail outside it.

If you want a routine that puts exits on paper before the trade starts, our free 15-Minute Swing Trader’s Checklist has the daily steps and the questions to ask before every trade. Get the free checklist →

When should you use a trailing stop, and when should you not?

A trailing stop earns its keep in a trend. When a market makes higher highs and higher lows for weeks, a trail lets you stay in for the run without guessing where it ends, which is exactly the problem the Reddit poster described. Selling winners too early is mostly a feeling problem. The fear of watching a gain shrink is stronger than the hope of watching it grow, so you grab it, and later you feel the regret. A trailing stop hands that decision to a rule you wrote while you were calm.

In a sideways, choppy market it does the opposite. The price rises, falls back, rises again, and every pullback trips the trail for a small gain or a small loss, over and over.

Then there is the question of when to switch it on. Most traders start with a fixed initial stop, placed where the trade idea is proven wrong, and only start trailing once the trade has moved some way in their favour. Trailing from the first minute tends to put the stop inside the normal noise around the entry. Setting that first stop is covered in Entry, Stop-Loss and Target: How to Set All Three.

What can a trailing stop not protect you from?

Gaps. This is the part no order type can fix.

A trailing stop is a kind of stop order, and the SEC is plain about what a stop order does: “The stop price is a trigger that causes the stop order to become a market order.” It adds that the price you get “can deviate significantly from the stop price.”

Imagine your trail sits at 56 and the company reports bad results overnight. The stock opens at 48. Your stop triggers at the open and sells at around 48, because 56 never traded. The trail did its job, and you still lost far more than you planned.

You could use a trailing stop-limit instead, which only sells at your limit price or better. That fixes the price and gives up the certainty of getting out. If the stock gaps below your limit, the order simply does not fill, and you are still holding a falling stock. For an exit whose job is to protect the account, a bad fill is usually easier to live with than no fill. The full comparison is in Order Types Explained: Market, Limit, Stop and Stop-Limit.

Two smaller points from the same bulletin. Not every broker offers trailing stops, and they do not all trigger them the same way: “Some exchanges use only last-sale prices to trigger a trailing stop order, while other venues use quotation prices.” Read your own broker’s order page before you rely on one.

Think back over the last year. Which gain did you hand back that hurt the most? And did it go because a stop was too tight, or because there was no stop at all? Those two answers tell you which way your trail needs to move.

FAQ

What is a trailing stop loss in simple terms?

It is a stop that moves up as the price rises, for a long position, and never moves down. If the price falls back from its high by the amount you set, the stop is hit and the position is sold.

What is a good percentage for a trailing stop?

There is no single good percentage, because the right width depends on how much that market normally moves. A width based on the Average True Range, or on the last swing low, adjusts to each market in a way a fixed percentage cannot.

Is a trailing stop better than a fixed stop-loss?

They do different jobs. A fixed stop marks where your trade idea is wrong and caps the first loss, while a trailing stop protects open profit once the trade has moved. Many traders use the fixed stop first and switch to a trail later.

Does a trailing stop guarantee my exit price?

No. A trailing stop becomes a market order when it is hit, so in a fast market or a gap it can fill well below the stop price.

What is the difference between a trailing stop and a trailing stop-limit?

A trailing stop becomes a market order when triggered, so it gets you out at whatever price is available. A trailing stop-limit becomes a limit order, so it only sells at your limit or better, and it may leave you holding the position in a gap.

Go deeper

This post sits under our guide to money and risk management. If you would like the daily routine that ties exits to the rest of the trade, the free 15-Minute Swing Trader’s Checklist is the place to start.

About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.