Stop loss, break-even and trailing stops explained
Three tools decide how a trade ends. Used together, they turn "I hope this works" into a plan.
Stop loss: decide where you're wrong
A stop loss closes the trade automatically at a set price. In MetaTrader 5 it is stored on the broker's server, so it works even if your computer or VPS goes offline. Your position size should come from it: if the stop is $1 away and you're willing to lose $10, you trade the size where $1 of movement equals $10.
Break-even: remove the risk
Once a trade has moved a certain amount in your favour, the stop is moved to the entry price, often a little beyond it to cover costs. From then on, the worst case is roughly zero (gaps and slippage can still cost a little). The trade-off: move it too early and normal noise will close trades that would have worked.
Trailing stop: follow the move
A trailing stop moves the stop behind the price as the trade gains, at a fixed distance or in steps. It never moves back. You give up the exact top of the move in exchange for staying in as long as it continues.
How they work together
- Entry with a stop loss attached.
- Price moves in your favour: stop to break-even.
- Price keeps moving: the trailing stop takes over.
- Price turns: the trailing stop closes the trade with the profit it locked in.
The honest trade-off
Tight stops mean small losses but more of them. Loose stops mean fewer stop-outs but bigger losses each time. There's no setting that wins everywhere, which is why a robot should test its rules over a long period with real spreads, not just a good week.
Dexter Byte uses all three on every trade. Read how.
This article is general education, not financial advice. Trading leveraged products carries a high risk of loss.