Where should you put your stop loss?
A stop loss marks the price where your reason for the trade no longer holds. Buy a bounce off support and your idea is that buyers defend that area. If price breaks well below it, the idea has failed, and holding on turns a plan into a hope. So the stop goes on the far side of what you are trading: below support for a long, above resistance for a short.
Say a stock has held a support zone between $99.60 and $100.00 three times, with the latest swing low at $99.50. You buy at $100.40. A structural stop goes a little under that low, say $99.35. If price gets there, the level has broken.
A fixed percentage skips this question. A 2% stop on a slow utility stock can sit far past any level that matters, while on a fast tech name it can sit inside one normal candle. The chart does not know your percentage, so use percentages for sizing and structure for the stop. Typical structural stops:
- Bounce off support: below the zone and the swing low that formed the bounce.
- Rejection at resistance (short): above the zone and the swing high.
- Breakout: back inside the range, or below the retest low after a break-and-retest.
- VWAP or moving-average reclaim: below the swing that reclaimed the line, rather than a few cents under the line itself.
How far should your stop be? Use ATR as a ruler
ATR (Average True Range) measures how much a stock typically moves per bar on your timeframe. It is free and built into TradingView, and the default length of 14 works fine.
Use it twice. First, add a buffer of roughly 0.1 to 0.3 ATR beyond the level, so a routine wick through the exact low does not take you out. Second, check the full distance from entry to stop. Under about 0.5 ATR, ordinary movement can hit it before the idea has a chance, which is how traders get stopped out right before the move. Over 2 to 3 ATR, the target has to be very far away to pay for the risk, and the position gets tiny.
Example: on a 5-minute chart, ATR is $0.40. A stop $0.12 away (0.3 ATR) sits inside the noise. A stop $1.50 away (almost 4 ATR) is a swing-trade stop on a day-trade chart. Between $0.20 and $1.00 is workable, as long as the stop stays beyond the level. If the structural stop is too wide, wait for an entry nearer the level or pass rather than squeezing it.
How to set take profit: aim for the next level
Your target goes just in front of the next level that could stop the move. For a long, that is the nearest resistance: a prior swing high, the prior day's high, VWAP from below, or a round number that has mattered before. For a short, it is the nearest support. Set the target a few cents before the level, because price often stalls just short of it.
That is what room to target means: before you enter, measure to the first level in the way. If it is closer than the target you need, the trade has no room, however good the entry looks.
Say you buy at $50.00 with a stop at $49.50, risking $0.50 a share. A 2R target is $51.00, but the prior day's high sits at $50.60, and price is likely to react there first. Your realistic reward is about $0.55, roughly 1.1R. Skip it, or wait for a clean break above $50.60 and plan a fresh trade.
Risk/reward ratio and R multiples, explained
R is your initial risk per share: the distance from entry to stop. It makes trades on a $20 stock and a $400 stock comparable. Buy at $100 with a stop at $98, and 1R is $2. Exit at $105 and the result is +2.5R. Stopped at $98, it is -1R. Out early at $99, it is -0.5R.
Risk/reward is the same idea before the trade: planned reward divided by planned risk. A $104 target there offers $4 against $2 of risk: 2R, often written as 1:2.
The ratio also shows how often you must be right just to break even before costs: risk ÷ (risk + reward). Farther targets lower that bar but get reached less often, and only help if the chart has room. Commissions and slippage raise every number a little.
- 1R target: right 50% of the time to break even.
- 2R target: about 33%.
- 3R target: 25%.
Position size formula: how many shares to buy
Here the stop becomes a number for your broker: shares = (account size × risk per trade) ÷ (entry − stop). For a short, use stop − entry. Many traders risk 0.5% to 1% of the account per trade.
With a $10,000 account and 1% risk, you accept losing $100. Buy at $50 with a stop at $49, a $1 distance, and $100 ÷ $1 = 100 shares, a $5,000 position. If the stop is hit, you lose about $100 plus costs.
Keep the dollar risk fixed and let the share count change. A $0.25 stop on the same account gives 400 shares, a $20,000 position the account cannot hold, so buying power caps you first. Also:
- Round the share count down, never up.
- Margin and buying power rules vary, so check your broker's current terms before the trade.
- A stop order does not guarantee your exit price. Once triggered it becomes a market order, so fast moves and gaps can fill you past the stop and cost more than 1R.
Trailing stops and partial exits
Once a trade moves your way, trail the stop under each new higher low (above each lower high on a short), so it only moves when the chart prints a new level. Trailing under a short EMA is simpler but gets hit more in choppy markets.
A partial exit takes some shares off at the first level or at 1R and trails the rest. It smooths the ride but shrinks your average winner, so set the rule before you enter. Moving to breakeven too early is a common way to turn good trades into scratches; wait for a new swing beyond your entry.
Common stop loss and take profit mistakes
Most come from deciding during the trade instead of before it, especially in the first months of day trading.
- No stop at all. A mental stop is easy to skip when price is moving against you.
- Moving the stop further away as price approaches it, which turns a planned 1R loss into an unplanned 3R loss.
- Stops exactly on the obvious low or round number, with no ATR buffer.
- Targets that ignore the resistance sitting just above the entry.
- The same share count on every trade, so your risk drifts with each stop distance.
- Picking the target after you are in. Plan the exit before the entry, while you are still neutral.
How UpTickFlow sets the stop and target
UpTickFlow is our invite-only TradingView indicator, and it applies these rules before a signal appears. Each signal comes with an entry (the next bar's open), a stop and two targets, calculated on closed bars and drawn as a red box from the entry to the stop, a green box to the second target and a dashed line at the first. Target 1 sits at 1R, where half comes off and the stop moves to the entry; target 2 is the next level, capped at 3R. The alert carries all of them, so you can size the trade before the bar opens.
It also passes on the trades this guide says to pass on. Stops tighter than 0.3 ATR are widened, setups that would need a stop wider than 2 ATR are skipped, and a setup is dropped when the next level is closer than the target. It filters setups and gives a plan; it does not predict the market, trading stays risky, and your risk per trade is your call. See pricing, or compare free options in our best TradingView indicators list.