Stop Loss & Exit Rules: Designing Your Way Out Before You Enter

The second topic in the
risk-management series is
stop loss & exit rules.

Many traders:

spend a lot of time on entries,
but only think about stops and targets after they enter,
or tell themselves they will “decide later” based on feel.

In real trading:

Trades where you decide
“where and how to get out” before you enter
tend to survive much longer than those that don’t.

In this article, we’ll treat stop losses not as:

“painful actions where you lock in a loss”,

but as:

pre-planned safety devices
that protect your account.

1. Why exits come before entries

Without clear stop and exit rules,
trades often follow this pattern:

when in profit:
→ “I don’t want to lose this,” so you take profits too early
when in loss:
→ “Maybe it will come back…”
and losses become much larger than planned

The result:

win rate might look fine,
but a single large loss
can erase many small winners.

That’s why, as in risk-reward, you need:

“Each trade can lose at most −1R,”
“Targets aim for at least +2R or more.”

Stop and exit rules are what connect
this R structure to actual price and position size.

2. Three core functions of a stop loss

A stop loss is not just a “give up and exit” button.
It serves three key functions.

Limit maximum loss
- It enforces the 1R limit
  that you defined in risk-reward,
- keeping each trade’s impact
  on your account under control.
Define where your idea is invalidated
- Based on s-r and
  swing-vs-correction,
- you choose a price area where you say:
  “If price gets here,
  my scenario is wrong and I accept it.”
Protect your psychology
- Without stops, you can hold losing positions
  until they reach a level that feels
  emotionally overwhelming.
- A pre-planned stop is also
  a mental safety line that says:
  “Up to here I can stay objective.
  Beyond this, I don’t want to go.”

3. Types of stops: price, time, and condition

There are many variations,
but for a practical foundation
three categories are enough.

Price-based stops (technical stops)

These are the most important.
- slightly outside key support/resistance zones
  from s-r,
- slightly outside recent swing highs/lows
  from swing-vs-correction,
- adjusted to include typical noise
  using atr.
Time-based stops (time stops)

Even if price doesn’t move much:
- “If this trade hasn’t started working
  within X candles/days, I’m out,”
- even if it’s near breakeven.
Trend-following traders often say:
“Positions that don’t start moving soon
rarely become great trades.”
Condition-based stops (structure change)

These are exits triggered
by a change in market structure.
- patterns from candles,
  chart,
- that clearly say:
  “The market is now behaving
  opposite to my original idea.”
For example, in a long position in an uptrend,
a strong bearish candle plus a key support break
might be a reason to exit
without waiting for the hard stop.

In practice, most traders use:

price-based stops as the backbone,
and add time/condition-based stops as optional filters.

4. Basic principles for technical stops

Here are some simple guidelines
for placing price-based (technical) stops.

4-1. Place stops “outside the structure”

For long trades, stops are usually:

below key support from s-r,
below recent swing lows
from swing-vs-correction.

Example:

recent swing low: 19,500 USD,
stop somewhere like 19,490–19,450 USD,

so that the stop only triggers
after the swing low is clearly broken.

This helps reduce the classic pattern:

“wick down → stop out → immediate move
back in your original direction.”

4-2. Use ATR to include “normal noise + buffer”

atr shows:

how much the market normally swings
within a single candle.

When placing stops, instead of:

“just below the swing low,”

you can think in terms of:

“swing low minus 0.5–1.0 ATR of buffer.”

This makes you less vulnerable
to routine noise and liquidity sweeps.

4-3. Stops that are too tight can lead to bigger losses

If your stops are always extremely tight:

you may get stopped out often,
then feel pressure to “give trades more room,”
and end up taking one very large loss
that undoes many small ones.

Stop placement should consider:

account-level risk rules
(risk-reward,
position-sizing),
and market volatility
(atr),

together, not in isolation.

5. Partial exits and simple trailing stops

Exit structure matters as much as the entry.
We’ll keep things simple here
and focus on basic building blocks.

5-1. Example of partial exits

Suppose a trade has this R structure:

stop: −1R
first target: +2R
second target: +3R or more

One possible plan:

At +2R
- close 50% of the position,
- move stop on the remaining 50%
  to breakeven or +1R.
For the remaining 50%
- let it run with the trend
  based on trend-following,
- and use s-r or
  moving averages (ma)
  to decide where to exit.

This way:

you lock in some profit,
and still leave room
for a larger trend move.

5-2. A simple view of trailing stops

There are many trailing stop techniques.
The simple idea is:

“As price moves in your favor,
you gradually move your stop
to protect more of your open profit.”

Examples for a long position:

trail the stop below
new support zones from s-r,
or exit when the daily close
falls below a key moving average
from ma.

The key is:

before entering, have at least a rough idea of
“When will I move my stop to breakeven?”
“Where will I consider closing the rest?”

6. Common mistakes with stops and exits

6-1. Moving your stop further away

Classic pattern:

you plan: “I’ll cut the trade if it reaches X,”
price hits X,
then you tell yourself:
- “Maybe just a bit more room,”
- “It would be a waste to exit right here,”
and push the stop further away.

Now:

your 1R limit from
risk-reward is broken,
and the loss may become
hard to accept emotionally.

It’s usually better to adopt:

“I set my stop before I enter,
and I don’t move it further away afterward.”

(Trailing stops that move in your favor
based on a tested system are a separate matter.)

6-2. Deciding on stops only after entering

Another pattern:

enter first,
and only start thinking about
stop placement once price moves against you.

At that point:

your emotions are already involved,
making calm judgment much harder.

A healthier habit:

define, before entering:
- stop price,
- loss in currency and in R,
- basic targets (first and second).

Then you either accept that package
or skip the trade.

6-3. Using only vague indicator-based stops

Examples:

“I’ll exit if RSI drops below 50,”
“I’ll exit if MACD gives a sell signal again.”

If these rules are not tied
to actual price structure,
you can end up in trades where:

you don’t really know
how far against you price can go,
and where the system forces you out.

In most cases, it’s more practical to:

start with price structure
from s-r and
swing-vs-correction,
and then use indicators
(trend,
oscillators) as secondary input.

7. Questions to review your current exit rules

As you refine your stop & exit rules,
it helps to ask:

“How many R
am I really risking per trade right now?”
(Have you calculated it in actual numbers?)
“Are my stop levels
placed outside key structure zones
from s-r
and swing-vs-correction?”
“Do my stops account
for normal volatility
using atr?”
“Do I have at least one simple rule
for partial exits and trailing stops?”
“Do I define my exits
before I enter the trade,
or only after emotions are involved?”

In short, stop loss & exit rules are:

exit plans that protect your account,
decided before you click the buy or sell button.

If you:

start with a clear 1R framework
from risk-reward,
use this article to design
your stop, target, partial exit,
and trailing stop structure,
and then connect it to
position-sizing
and atr-sizing,

you’ll be much closer
to a stable equity curve,
even if your entries stay exactly the same.