Fixed stops, trailing stops, ATR-based stops, and time-based exits. Learn which stop-loss method works best for different market conditions.
A stop-loss is a predetermined exit point that limits your loss on a trade. It's not optional — it's the most important order you place. Without a stop-loss, a small loss can become a catastrophic one. Every professional trader uses stops; every blown account story involves someone who didn't.
The key principle: decide your stop-loss BEFORE entering the trade, and never move it further away from your entry. Moving stops to avoid losses is the most common and destructive mistake in trading.
Risk/Reward Ratio (1:3 Example)
Fixed percentage stop: Exit if price moves X% against you (e.g., -3% for swing trades, -1% for scalps). Simple but doesn't account for market structure.
Structure-based stop: Place stop below the nearest support (for longs) or above resistance (for shorts). More intelligent — your trade is invalid only if the structure breaks. Preferred by experienced traders.
ATR-based stop: Use Average True Range to set stops based on current volatility. Stop = Entry - (ATR × multiplier). Adapts automatically to market conditions — wider in volatile markets, tighter in calm ones.
Time-based stop: Exit if the trade hasn't moved in your favor within a set timeframe. Prevents capital from being tied up in dead trades.
Pro Tip: Place stops slightly beyond the obvious level (e.g., a few percent below support rather than exactly at it). Market makers and algorithms hunt stops at obvious levels — give yourself a buffer.
A trailing stop moves with price in your favor, locking in profits while giving the trade room to run. As price rises, the stop rises with it (but never moves down). This lets you capture large trends without having to predict the exact top.
Methods: (1) Trail by a fixed percentage (e.g., stop always 5% below the highest price reached), (2) Trail below moving averages (e.g., exit if daily close below 21 EMA), (3) Trail below swing lows (move stop to below each new higher low in an uptrend).
Crypto is volatile — tight stops get hit by normal price noise. A 1% stop on a BTC swing trade will be stopped out by random wicks constantly. Match your stop width to your timeframe:
Scalps (minutes): 0.3-1% stops
Day trades (hours): 1-3% stops
Swing trades (days-weeks): 3-8% stops
Position trades (weeks-months): 10-20% stops (or structure-based)
Wider stops require smaller position sizes to maintain the same dollar risk. This is where position sizing and stop-loss strategy intersect.
The fundamentals of spot trading — market orders, limit orders, order books, slippage, and how to execute trades efficiently on any exchange.
Advanced guide to crypto futures — perpetual contracts, funding rates, mark price vs last price, and how to manage leveraged positions.
Understanding leverage — margin requirements, liquidation mechanics, position sizing for leveraged trades, and why most leveraged traders lose.