Stop loss and take profit
Where the two levels sit on the chart
A chart shows price as a line that moves left to right. Each pip is a small step on that line. On USD/INR, one pip is the fourth decimal place, so a move from 83.2500 to 83.2510 is one pip. Your stop loss sits on one side of the entry price and your take profit sits on the other.
Suppose the price is 83.2500 and you buy, expecting the rupee to weaken against the dollar. Your stop loss goes below 83.2500, say 15 pips lower at 83.2485. Your take profit goes above, say 30 pips higher at 83.2530. The distance from entry to stop is your risk. The distance from entry to target is your reward.
If you sell instead, the two levels swap sides. The stop sits above the entry and the target below. The arithmetic does not change. Only the direction of the bet changes.
A level is not a guess about what will happen. It is a price you pick before the market moves. Once the price touches it, the platform closes the position. You do not have to watch the screen for that to happen.
Choosing the distance before the money
Most beginners pick a rupee amount first. They decide they can lose ₹500 and then look for a stop distance that fits. That works, but it is easier to start from the chart. Find the nearest price where the market has turned before. Put the stop just beyond it. Then work out what that distance costs.
The cost is the pip distance multiplied by the value of one pip at your lot size. On USD/INR, one pip on one standard lot is ₹10. At 0.20 lots, one pip is ₹2. At 0.10 lots, one pip is ₹1. So a 15 pip stop on 0.20 lots costs 15 times ₹2, which is ₹30.
The take profit follows the same method. If the nearest sensible target is 30 pips away, the reward is 30 times ₹2, which is ₹60. The ratio of reward to risk is 60 divided by 30, which is 2 to 1. A ratio below 1 means you need to be right more often than not to break even after costs.
Brokers vary in how they round pip values. Many add a spread or commission on top. The exact rupee figure you see can differ from the one calculated here. Treat the arithmetic as a planning tool, not a promise.
What happens after the order is live
When you open a position with both levels attached, the platform holds two resting orders. One waits to close at your stop. The other waits to close at your target. Only one will ever fill. The other is cancelled when the first one closes.
If the market drifts sideways, neither level is touched. The position stays open. You pay any overnight charge the broker applies, and the spread may widen at certain times. A trade can sit for hours without reaching either price.
Moving a stop further away is the mistake the earlier page described. It feels like giving the trade room. In practice it changes the size of the loss you already agreed to. The same applies to moving a target closer out of impatience. Both actions replace a plan with a reaction.
A stop that is hit is not a failure of the method. It is the method working. The loss was known before entry, it was small relative to the account, and the next trade can be judged on its own.
Some brokers allow a trailing stop, which follows the price as it moves in your favour. That is a separate tool. It can lock in a smaller loss or a small gain, but it also closes trades that would have recovered. It is not required for this lesson.
A 0.10 lot USD/INR trade with a 20 pip stop and a 40 pip target
| Step | Amount | Note |
|---|---|---|
| Position size | 0.10 standard lot | one tenth of a standard lot, so one pip is worth one tenth of ₹10 |
| Value of one pip | ₹1 | ₹10 per pip on a standard lot multiplied by 0.10 |
| Stop loss distance | 20 pips | the distance from entry to the stop, chosen before the trade |
| Loss if the stop is hit | −₹20 | 20 pips multiplied by ₹1 per pip |
| Take profit distance | 40 pips | the distance from entry to the target, chosen before the trade |
| Profit if the target is hit | +₹40 | 40 pips multiplied by ₹1 per pip |
Brokers vary in how they round pip values, and many add a spread or commission on top. The exact rupee figure you see can differ from the one calculated here.
Doing it once, step by step
The reader will set both levels on a practice position, check the rupee cost of each, and confirm the orders are resting before leaving the screen.
- 01
Pick the entry price
Note the current USD/INR price, for example 83.2500. Decide whether you are buying or selling. Write the entry price down before you do anything else.
- 02
Find the stop distance
Look left on the chart for a recent price where the market turned. Measure the pips from your entry to just beyond that price. Write that number down. If it is more than 20 pips, consider a smaller lot size.
- 03
Find the target distance
Look for the next price where the market previously paused or reversed. Measure the pips from entry to that price. Write it down. Compare it with the stop distance. If the target is smaller than the stop, the trade needs a high win rate to work.
- 04
Convert both to rupees
Multiply each pip distance by the pip value for your lot size. On 0.20 lots, one pip is ₹2, so a 15 pip stop is ₹30 and a 30 pip target is ₹60. Check that the stop loss is an amount you can lose without changing your plans.
- 05
Attach the orders
Enter the position and set the stop loss and take profit at the prices you calculated. Do this in the same action as the entry where the platform allows it. Confirm both orders show as resting on the screen.
- 06
Leave them alone
Do not move either level while the trade is open. If the stop is hit, close the screen and record the loss. If the target is hit, record the gain. Review the trade only after it has finished.
The mistake most people make here
The common mistake is to set the stop loss after the trade has already moved against you, or to move it further away to avoid being closed out. That turns a planned loss into an unplanned one, and the amount can grow well beyond the ₹20 in the example. Decide both levels before you enter, write them down, and leave them alone. If the market hits your stop, the trade is over and the loss is the one you agreed to.Check yourself
You trade 0.20 lots of USD/INR with a stop loss 15 pips away. What is the loss in rupees if the stop is hit?
One pip on 0.20 lots is ₹10 multiplied by 0.20, which is ₹2. The loss is 15 pips multiplied by ₹2, which is ₹30.
On the same 0.20 lot trade, you set a take profit 30 pips away. What is the profit in rupees if it is hit?
One pip is still ₹2. The profit is 30 pips multiplied by ₹2, which is ₹60.
Questions that come up next
What happens to the other order when one of the two levels is hit?
Both instructions sit with the platform as resting orders. When the price touches one of them, that order closes the position. The remaining order is cancelled at the same moment, because there is nothing left for it to close. You do not need to cancel it yourself.
Can I move the stop loss after the position is open?
The platform usually allows it, but the page above explains why moving it further away turns a planned loss into an unplanned one. Moving it closer locks in a smaller loss but also raises the chance of being closed out by ordinary price movement. If you decide to move a level, write the new figure down before you do it.
Does the stop loss always close at exactly the price I chose?
Not always. A stop loss becomes a market order once the price reaches your level. If the market jumps past your level, the fill can be worse than the figure you set. This gap risk is larger around major news releases and at times when the market is thin. Treat the stop price as a trigger, not a promise.
What is the difference between a stop loss and a take profit in terms of order type?
Both are resting orders attached to the open position, but they sit on opposite sides of the entry price. A stop loss sits where the market would move against you. A take profit sits where it would move in your favour. On a buy, the stop is below and the target is above; on a sell, they swap.
How do I decide the pip distance for each level?
Start from the chart rather than a rupee figure. Look for a recent price where the market turned before and place the stop just beyond it. Then measure the distance in pips and multiply by the value of one pip at your lot size. The take profit follows the same method on the other side.
Does the spread affect the rupee amount I calculated?
Yes. The spread is the difference between the buying and selling price, and it is already built into the quote you see. Many brokers also charge a commission on top. This means the exact rupee figure on your statement can differ from the arithmetic in the lesson. Brokers vary in how they round pip values, so check your own platform.
The words used on this page
- Pip
- The smallest standard step in a currency price. On USD/INR it is the fourth decimal place, so a move from 83.2500 to 83.2510 is one pip.
- Stop loss
- An instruction attached to a position that closes it at a loss you chose before entering. It sits on the side where the market would move against you.
- Take profit
- An instruction attached to a position that closes it at a profit you chose before entering. It sits on the side where the market would move in your favour.
- Lot
- The size of the position you open. A standard lot on USD/INR gives one pip a value of ₹10, and smaller lot sizes reduce that value in proportion.
- Spread
- The gap between the price at which you can buy and the price at which you can sell. It is a cost built into the quote, and it varies between brokers.
- Reward to risk ratio
- The distance to your take profit divided by the distance to your stop loss. A ratio of 2 to 1 means the target is twice as far as the stop.
What to take away
- A stop loss and a take profit are both chosen before you enter, and both are left alone once the position is open.
- The pip distance multiplied by the value of one pip at your lot size gives the rupee amount at risk or on offer.
- Moving a stop loss further away after the trade has turned turns a planned loss into an unplanned one.
- Brokers vary in rounding, spreads and commissions, so the figure on your statement can differ from the arithmetic.