Setting stop losses

Markets move in both directions, and even high-probability setups can fail. A stop loss is the trader's pre-committed answer to the question 'at what point have I been proven wrong?'. Without one, a losing trade can become a much bigger losing trade. Stop losses also remove the emotional dimension from exiting a bad position. The decision has already been made; the platform executes it without the trader having to act.

The two most widely used methods for placing stops are structure-based and volatility-based.

Structure-based stops are placed beyond a meaningful price level: below recent support for a long position, above recent resistance for a short. The logic is that if the price breaks through that level, the original trade idea is invalidated. Volatility-based stops are placed at a distance based on the instrument's typical daily range, often using the Average True Range (ATR) indicator. Both methods produce different stop placements, and the right one depends on the trader's strategy.

A tight stop preserves more capital if the trade fails, but is more likely to be triggered by routine market fluctuation. A wide stop survives normal noise but costs more if the trade fails. There is no universal best answer. Tighter stops are appropriate when the entry is precise and the trade idea is invalidated quickly. Wider stops are appropriate when the trade is taking a view on a longer-term move that may take time to develop.

Stops placed at round numbers (1.0800, 1.5000, 150.00) are common targets for short-term liquidity hunts. Placing a stop exactly at an obvious support or resistance level is the same problem.

The most visible level is the level the market most reliably tests.

Many experienced traders place stops a small distance beyond the obvious level, not exactly at it. This gives the trade more room to survive a test of the level without committing to a much wider stop.

A stop loss order does not guarantee that the position will close at exactly the stop price. In conditions of extreme volatility, market gaps, or low liquidity, the actual execution price can be worse than the stop level. This is known as slippage on a stop. JT Markets uses MetaTrader 5's standard stop-loss handling. Some brokers offer guaranteed stop loss orders for an additional fee. JT Markets does not currently offer guaranteed stops.