{"id":57623,"date":"2026-07-27T01:38:51","date_gmt":"2026-07-27T01:38:51","guid":{"rendered":"https:\/\/www.vtmarkets.com\/en-ca\/uncategorized\/stop-loss-and-take-profit-how-to-calculate-them-correctly\/"},"modified":"2026-07-27T01:38:51","modified_gmt":"2026-07-27T01:38:51","slug":"stop-loss-and-take-profit-how-to-calculate-them-correctly","status":"publish","type":"post","link":"https:\/\/www.vtmarkets.com\/en-ca\/discover\/stop-loss-and-take-profit-how-to-calculate-them-correctly\/","title":{"rendered":"Stop Loss and Take Profit: How to Calculate Them Correctly"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Ask any experienced trader what separates a long, sustainable career in the <strong>financial markets<\/strong> from a short, painful one, and most will say the same thing: it&#8217;s rarely the entry. It&#8217;s what happens after \u2014 specifically, whether you had a <strong>stop loss and take profit<\/strong> plan in place before you ever clicked &#8220;buy&#8221; or &#8220;sell.&#8221;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This guide is a genuinely evergreen, <strong>stop loss basic<\/strong> to advanced walkthrough covering exactly <strong>how to calculate stop loss and take profit<\/strong>, why both matter for every <strong>trading strategy<\/strong>, and how to apply them whether you&#8217;re a short-term scalper or a long-term position holder. Written for anyone opening a <strong>trading account<\/strong> for the first time, right through to <strong>experienced traders<\/strong> looking to sharpen their approach.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Takeaways<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A <strong>stop loss<\/strong> automatically closes a <strong>trading<\/strong> position once the <strong>market price<\/strong> hits a predetermined level, helping to <strong>limit losses<\/strong> and remove <strong>emotional decision making<\/strong> from the equation.<\/li>\n\n\n\n<li>A <strong>take profit<\/strong> order does the opposite \u2014 it <strong>automatically closes<\/strong> a position once your <strong>target price<\/strong> is reached, helping to <strong>lock in profits<\/strong> before the <strong>market moves<\/strong> against you.<\/li>\n\n\n\n<li><strong>How to calculate stop loss and take profit<\/strong> usually starts with your <strong>entry price<\/strong>, your <strong>risk tolerance<\/strong>, and nearby <strong>support and resistance levels<\/strong>.<\/li>\n\n\n\n<li>A sound <strong>risk reward ratio<\/strong> \u2014 commonly at least 1:2 \u2014 means you can be wrong more often than you&#8217;re right and still stay profitable over the <strong>long term performance<\/strong> of your <strong>trading<\/strong> account.<\/li>\n\n\n\n<li><strong>Position size<\/strong>, not just the exact <strong>stop loss<\/strong> distance, is what ultimately determines how much capital is genuinely at risk on any single trade.<\/li>\n\n\n\n<li>Managing risk with <strong>stop loss and take profit orders<\/strong> is a foundational skill across every <strong>asset class<\/strong>, from <strong>forex trading<\/strong> to shares, indices, and <strong>precious metals<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>A Brief History of Trading and Risk Management<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The instinct to manage risk while <strong>selling assets<\/strong> and <strong>selling financial instruments<\/strong> is far older than any <strong>trading<\/strong> platform. Historians trace bartering back to <strong>early humans<\/strong> in the <strong>Stone Age<\/strong>, long before <strong>ancient history<\/strong> gave us the first organised marketplaces. By the <strong>Middle Ages<\/strong>, <strong>trade fairs<\/strong> across Europe, <strong>Central Asia<\/strong>, and the <strong>Middle East<\/strong> had grown into genuine <strong>economic centres<\/strong>, connecting merchants through <strong>hand to hand markets<\/strong> and early forms of credit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As <strong>extensive trade networks<\/strong> expanded across <strong>global currencies<\/strong> during the <strong>Industrial Revolution<\/strong>, the need for formal <strong>risk management<\/strong> tools grew alongside them \u2013 merchants needed ways to <strong>manage risk<\/strong> on shipments that might take months to arrive. Modern efforts to <strong>promote free trade<\/strong> and the rise of standardised exchanges eventually gave today&#8217;s <strong>retail traders<\/strong> and <strong>hedge funds<\/strong> the same basic tools once used informally: a plan for what happens if the <strong>market<\/strong> moves against you, and a plan for what happens if it moves in your favour. That&#8217;s essentially what <strong>stop loss and take profit<\/strong> orders formalise today.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/www.vtmarkets.com\/\"><img decoding=\"async\" src=\"https:\/\/www.vtmarkets.com\/wp-content\/uploads\/2026\/07\/Stop-Loss-and-Take-Profit-1024x573.webp\" alt=\"Stop Loss and Take Profit: How to Calculate Them Correctly\" class=\"wp-image-62668\"\/><\/a><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What Are Stop Loss and Take Profit Orders?<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">At its core, a <strong>stop loss<\/strong> is a pending order that automatically closes your <strong>trading<\/strong> position once the <strong>market price<\/strong> reaches a level you&#8217;ve defined in advance. Think of it as a safety net: once the <strong>market<\/strong> moves a certain distance against you, the position shuts down without further input, removing emotion from the decision.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A <strong>take profit<\/strong> works in the opposite direction. It&#8217;s an order that <strong>automatically closes<\/strong> your position once the <strong>market price<\/strong> reaches a <strong>profit target<\/strong> you&#8217;ve set \u2014 securing gains before a favourable move has the chance to reverse. Together, <strong>stop loss and take profit<\/strong> define both ends of a trade before you&#8217;ve even opened it, which is precisely why so <strong>many traders<\/strong> treat this pairing as a <strong>basic<\/strong>, non-negotiable part of any <strong>trading strategy<\/strong>. VT Markets&#8217; guide on <a href=\"https:\/\/www.vtmarkets.com\/discover\/effective-stop-loss-strategies-for-smarter-risk-management\/\" target=\"_blank\" rel=\"noopener\" title=\"\">effective stop loss strategies for smarter risk management<\/a> covers this same foundation with additional platform-specific detail.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Stop Loss (SL)<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A Stop Loss order instructs your broker to close a trade at a predetermined price level to limit potential losses. For example, if you buy EUR\/USD at 1.1000 and set a Stop Loss at 1.0950, your trade will automatically close if the price drops to 1.0950, preventing further losses.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Take Profit (TP)<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A Take Profit order is the opposite of a Stop Loss order. It instructs your broker to close a trade at a specific price level to lock in profits. For example, if you buy EUR\/USD at 1.1000 and set a Take Profit at 1.1100, your trade will automatically close when the price reaches 1.1100, securing your profit.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Stop Loss (SL)<\/strong> and <strong>Take Profit (TP)<\/strong> orders are essential for disciplined trading. They help you adhere to your trading plan, avoid emotional decision-making, and manage risk effectively.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How Stop Loss Orders Work<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A <strong>stop loss<\/strong> is typically placed below the <strong>entry price<\/strong> on a long position, or above it on a short position. Once the <strong>current price<\/strong> touches that <strong>set price<\/strong>, the order triggers and the position closes \u2014 locking in a defined, known loss rather than an open-ended one.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>On MT4 and MT5, you can set a <strong>stop loss<\/strong> directly when opening a new order, or attach one afterwards to an <strong>open position<\/strong>.<\/li>\n\n\n\n<li>Trailing stops adjust automatically as a trade moves in your favour, helping to <strong>secure profits<\/strong> while still allowing further upside.<\/li>\n\n\n\n<li>During major news releases, <strong>market conditions<\/strong> can occasionally cause slippage, where a <strong>stop loss<\/strong> fills at a slightly worse <strong>price<\/strong> than requested \u2014 a reasonable precaution to keep in mind rather than a reason to avoid using them.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How Take Profit Orders Work<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A <strong>take profit order<\/strong> functions as a type of <strong>limit order<\/strong> \u2014 it seeks to close your position at the <strong>best price<\/strong> available once the <strong>market<\/strong> reaches a specific, favourable <strong>price<\/strong>, whether you&#8217;re online to see it happen or not. This is particularly valuable for <strong>short term traders<\/strong>, and a <strong>TP order<\/strong> is especially well suited to short-term trading strategies if they can&#8217;t watch every tick, while still being equally useful for <strong>long term traders<\/strong> who want to <strong>lock in profits<\/strong> at a <strong>target profit<\/strong> level without needing to check their <strong>trading account<\/strong> constantly.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Setting a <strong>take profit point<\/strong> in advance also protects against a common pitfall: watching a winning trade drift back to breakeven, or worse, simply because there was no plan to <strong>secure profits<\/strong> at the right moment.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How to Calculate Stop Loss and Take Profit<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>How to calculate stop loss and take profit<\/strong> doesn&#8217;t need to be complicated. Here&#8217;s a straightforward, repeatable process.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Step 1: Determine Entry Price and Risk Tolerance<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Start with your <strong>entry price<\/strong> \u2014 the <strong>price<\/strong> at which you plan to open the trade \u2014 and decide your <strong>risk tolerance<\/strong> in cash or percentage terms. Many <strong>experienced traders<\/strong> cap risk at 1\u20132% of total <strong>trading account<\/strong> equity per trade, regardless of how confident they feel about the setup.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Step 2: Set Your Stop Loss Using Support and Resistance<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Rather than picking an arbitrary distance, look at <strong>support and resistance levels<\/strong> on the chart. A <strong>stop loss<\/strong> placed just beyond a recent swing low (for a long position) or swing high (for a short position) respects the <strong>market&#8217;s<\/strong> own structure, rather than an emotional guess. This is where <strong>technical analysis<\/strong> and <strong>technical indicators<\/strong> \u2014 moving averages, RSI, or trendlines \u2014 can help refine exactly where that level sits.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Step 3: Calculate Your Take Profit Using Risk Reward Ratio<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Once your <strong>stop loss<\/strong> distance is set, apply a <strong>risk reward ratio<\/strong> to calculate your <strong>take profit<\/strong>. A minimum ratio of 1:2 is common practice \u2014 if you&#8217;re risking 30 pips or points, your <strong>profit target<\/strong> sits at 60 or more. This single habit means you can lose more trades than you win and still stay net profitable over time.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Worked Example: Calculating Stop Loss and Take Profit<\/strong><\/h2>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><th>Step<\/th><th>Detail<\/th><\/tr><tr><td><strong>Entry price<\/strong><\/td><td>1.0850 (EUR\/USD long position)<\/td><\/tr><tr><td><strong>Stop loss<\/strong><\/td><td>1.0820 (30 pips risk)<\/td><\/tr><tr><td><strong>Reward ratio<\/strong><\/td><td>1:2<\/td><\/tr><tr><td><strong>Take profit<\/strong><\/td><td>1.0910 (60 pips reward)<\/td><\/tr><tr><td>Maximum loss<\/td><td>30 pips if <strong>stop loss<\/strong> is hit<\/td><\/tr><tr><td>Potential <strong>profit<\/strong><\/td><td>60 pips if <strong>take profit<\/strong> is hit<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\">If the <strong>market<\/strong> falls to 1.0820, the trade closes automatically, preserving capital for the next opportunity. If it instead rallies to 1.0910, the <strong>take profit order<\/strong> locks in gains without you needing to watch the <strong>market<\/strong> in real time. This is the practical value of combining <strong>stop loss and take profit<\/strong> \u2014 both outcomes are decided in advance, calmly, rather than under pressure while <strong>price movements<\/strong> are actually happening.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Stop Loss and Take Profit in Different Trading Styles<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Not every <strong>trading style<\/strong> applies these tools the same way.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>For Short-Term Traders<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Short term traders<\/strong> \u2014 scalpers and day traders \u2014 often use tighter <strong>stop loss<\/strong> distances and correspondingly closer <strong>take profit<\/strong> points, reflecting smaller expected <strong>price movements<\/strong> over short <strong>trading<\/strong> windows. Precision around <strong>support and resistance levels<\/strong> and <strong>current price<\/strong> action matters more here than on longer timeframes.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>For Long-Term Traders<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Long term traders<\/strong> typically set wider <strong>stop loss<\/strong> and <strong>take profit<\/strong> levels to accommodate normal <strong>market<\/strong> noise, focusing more on the broader <strong>market trends<\/strong> and the <strong>underlying asset&#8217;s<\/strong> fundamentals than short-term <strong>price movements<\/strong>. Both approaches rely on the same underlying principle: define risk and reward before entering, not after.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Common Cautions to Note When Using Stop Loss and Take Profit<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">While <strong>stop loss and take profit orders<\/strong> are valuable <strong>risk management<\/strong> tools, a few precautions are worth keeping in mind:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Market conditions<\/strong> can shift quickly around major news events, and even a well-placed <strong>stop loss<\/strong> can occasionally fill at a less favourable <strong>price<\/strong> than expected during high volatility.<\/li>\n\n\n\n<li>Setting a <strong>stop loss<\/strong> too tight can result in being stopped out by ordinary <strong>market<\/strong> noise before a trade has a chance to play out \u2014 worth weighing against typical volatility for that <strong>asset class<\/strong>.<\/li>\n\n\n\n<li>Relying on <strong>take profit orders<\/strong> alone without periodically reviewing broader <strong>market trends<\/strong> can mean leaving additional gains on the table during a strong, sustained move.<\/li>\n\n\n\n<li><strong>Emotional decision making<\/strong> \u2014 moving a <strong>stop loss<\/strong> further away &#8220;to give the trade room&#8221; after it&#8217;s already in the trade \u2014 tends to undermine the very discipline these tools are meant to provide.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">VT Markets&#8217; piece on <a href=\"https:\/\/www.vtmarkets.com\/discover\/long-vs-short-how-to-profit-when-markets-fall\/\">long vs short: how to profit when markets fall<\/a> explores similar disciplined risk practices specifically for short positions, where losses can theoretically run further than on a long trade.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why Are Stop Loss and Take Profit Important?<\/h2>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Risk Management<\/strong>: Stop Loss orders and protect your capital by limiting potential losses. Losing trade without SL could wipe out your account.<\/li>\n\n\n\n<li><strong>Profit Locking<\/strong>: Take Profit orders to ensure you lock in gains before the market reverses. You might miss out on profits without a TP if the price suddenly moves against you.<\/li>\n\n\n\n<li><strong>Emotional Control<\/strong>: SL and TP orders remove the emotional aspect of trading. You don\u2019t have to constantly monitor the market or make impulsive decisions.<\/li>\n\n\n\n<li><strong>Discipline<\/strong>: These tools enforce discipline by ensuring you stick to your trading strategy and risk-reward ratios.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Tips to Manage Risk with Stop Loss and Take Profit Orders<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Always calculate <strong>position size<\/strong> based on your <strong>stop loss<\/strong> distance and <strong>risk tolerance<\/strong>, rather than fixed lot sizes.<\/li>\n\n\n\n<li>Combine <strong>stop loss and take profit<\/strong> with a consistent <strong>risk reward ratio<\/strong>, ideally 1:2 or better, across your <strong>trading strategy<\/strong>.<\/li>\n\n\n\n<li>Use trailing stops to <strong>secure profits<\/strong> as a trade moves in your favour, without capping the upside entirely.<\/li>\n\n\n\n<li>Review your <strong>stop loss<\/strong> and <strong>take profit<\/strong> placements against updated <strong>support and resistance levels<\/strong> if <strong>market conditions<\/strong> change materially before the trade is closed.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Start Online CFD Trading with VT Markets Today<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">If you are ready to put your understanding of <strong>stop loss and take profit orders<\/strong> to work in live markets, <a href=\"https:\/\/www.vtmarkets.com\/discover\" target=\"_blank\" rel=\"noopener\" title=\"\">VT Markets<\/a> provides access to <a href=\"https:\/\/www.vtmarkets.com\/tools\/\" target=\"_blank\" rel=\"noopener\" title=\"\">tools<\/a> and <a href=\"https:\/\/www.vtmarkets.com\/platforms\/\" target=\"_blank\" rel=\"noopener\" title=\"\">platforms<\/a> to help you get started. Trade on powerful platforms like <a href=\"https:\/\/www.vtmarkets.com\/metatrader-4\/\" target=\"_blank\" rel=\"noopener\" title=\"\">MetaTrader 4 (MT4)<\/a> and <a href=\"https:\/\/www.vtmarkets.com\/metatrader-5\/\" target=\"_blank\" rel=\"noopener\" title=\"\">MetaTrader 5 (MT5)<\/a>, designed for speed, reliability, and advanced trading features \u2014 exactly what you need to set precise <strong>stop loss<\/strong> and <strong>take profit<\/strong> levels when <strong>financial markets<\/strong> move fast.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">New to trading? Practise risk-free with a <a href=\"https:\/\/www.vtmarkets.com\/demo-account\/\" target=\"_blank\" rel=\"noopener\" title=\"\">VT Markets demo account<\/a> before committing to a live account \u2014 ideal for simulating how <strong>stop loss and take profit orders<\/strong> behave across currency pairs, indices, and commodities without financial risk.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Open your <a href=\"https:\/\/www.vtmarkets.com\/trade-now\/\" target=\"_blank\" rel=\"noopener\" title=\"\">live account with VT Markets<\/a> today and access secure, transparent, and competitive CFD trading across some of the world&#8217;s most popular markets.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Frequently Asked Questions About Stop Loss and Take Profit<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>1. What is the difference between stop loss and take profit?<\/strong> <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A <strong>stop loss<\/strong> automatically closes a losing <strong>trading<\/strong> position once <strong>price<\/strong> reaches a defined level, limiting downside. A <strong>take profit<\/strong> does the reverse, closing a winning position once your <strong>target price<\/strong> is reached, helping to <strong>lock in profits<\/strong> before the <strong>market<\/strong> can reverse.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>2. How to calculate stop loss and take profit correctly?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"> Start from your <strong>entry price<\/strong>, define your <strong>risk tolerance<\/strong>, place your <strong>stop loss<\/strong> near a relevant <strong>support and resistance level<\/strong>, then apply a <strong>risk reward ratio<\/strong> (commonly 1:2) to work out your <strong>take profit<\/strong> distance.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>3. Can I use stop loss and take profit in every asset class?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"> Yes. These tools apply across <strong>forex trading<\/strong>, shares, indices, commodities, and <strong>precious metals<\/strong> \u2014 any market where <strong>price movements<\/strong> and <strong>market conditions<\/strong> create genuine two-sided risk.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>4. Do professional traders always use a stop loss and take profit?<\/strong> <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Most <strong>experienced traders<\/strong> treat both as <strong>basic<\/strong>, standard practice, since they remove <strong>emotional decision making<\/strong> from the equation and turn an open-ended risk into a clearly defined one before the trade is even placed.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Every sustainable trading career is built on knowing when to exit \u2014 both when a trade goes wrong and when it goes right. This guide breaks down stop loss and take profit basics, how to calculate them, and the cautions worth keeping in mind before you trade.<\/p>\n","protected":false},"author":87,"featured_media":0,"comment_status":"","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[3],"tags":[],"class_list":["post-57623","post","type-post","status-publish","format-standard","hentry","category-discover"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t<!-- All in One SEO Pro 4.9.10 - aioseo.com -->\n\t<meta name=\"description\" content=\"Every sustainable trading career is built on knowing when to exit \u2014 both when a trade goes wrong and when it goes right. 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