Lesson 4 of 6 · 5 min · pass for +50 XP
Stop-loss (STOP) and take-profit (TP)
Investors who last aren't the ones who never lose. They're the ones who keep their losses small.
1Stop-loss (STOP)
The price at which you'll sell if the stock falls to it, so a loss doesn't spiral out of control. For example, buy at 100 and set a STOP at 92 = you accept losing about 8%.
In the contest: you can set a TP and a STOP together. Whichever is hit first sells the whole position, and the other one cancels itself (this is called OCO, "one cancels the other").
2Take-profit (TP)
The price at which you'll sell to lock in gains once the stock rises to it. It keeps the profit you have from disappearing if the price turns around.
3How much to put into each stock
In the contest: a single stock can't be more than 25% of your portfolio value, so you practice not going all-in.
A popular approach: decide that if your STOP is hit, you'll lose no more than 1–2% of your portfolio. For example, with a $10,000 portfolio you accept losing $200 per trade. If your STOP is 8% below your entry, you can put in about $2,500.
Reward-to-risk ratio (R:R): e.g. risking 8% to aim for 16% = 1:2. Even if you're right only half the time, you can still come out ahead.
🎯 Quiz 2 of 3 right: +50 XP · all correct: +20
For educational purposes only — not a recommendation to buy or sell any security. Investing involves risk.