A Stop Loss (SL) is a setting that says "automatically sell if I lose X amount," while a Take Profit (TP) says "automatically sell once I've made Y profit." For beginners trading futures, setting a stop loss is mandatory. You can find these options on the spot or futures order pages of the Binance Official Website or the Official Binance App. For region-switching info, refer to Binance App Download. Here is a guide for complete beginners.
In a Nutshell
- Stop Loss (SL) = Automatically sell when the price drops to X to limit losses.
- Take Profit (TP) = Automatically sell when the price rises to Y to lock in profits.
Why You Need a Stop Loss
Human nature is a problem:
- When prices drop, you hope "it will bounce back if I just wait a little longer."
- The more you lose, the harder it is to sell.
- Eventually, you face massive losses or even liquidation.
A stop loss is pre-set discipline. It executes automatically once the price is triggered, removing human emotion from the equation.
Stop Loss is Mandatory in Futures
In a futures + leverage environment:
- A 5% drop with 10x leverage = 50% loss of principal.
- No stop loss = Waiting for liquidation.
Beginners opening futures positions must set a stop loss.
Should You Use Stop Loss in Spot Trading?
Opinions vary:
- Long-term holders: Often don't use stop losses (short-term volatility is normal).
- Trend traders: Always use stop losses (to avoid major drawdowns).
For beginners holding long-term, you might not need a stop loss in spot trading. However, if you are buying "altcoins" that are crashing, you should cut losses in a timely manner.
How to Set a Stop Loss
Method 1: Fixed Percentage
- Purchase price: 70,000
- Stop loss: -5% → Set at 66,500
- Automatically sells if the price hits 66,500.
Method 2: Technical Analysis
- Find a "Support Level" on the K-line chart.
- Set the stop loss slightly below the support level.
- Breaking support indicates the trend has changed.
Method 3: Based on Volatility
- Check the ATR (Average True Range).
- Set stop loss at 2-3 times the ATR.
- This helps avoid getting stopped out by normal market "noise."
Method 1 is the simplest for beginners.
How to Set a Take Profit
Method 1: Fixed Percentage
- Purchase price: 70,000
- Take profit: +20% → Set at 84,000
- Automatically sells when the price rises to 84,000.
Method 2: Tiered Take Profit
- Sell half of your position at a 10% gain.
- Sell the remaining 50% at a 30% gain.
- This lets you lock in some profit while aiming for more.
Method 3: Trailing Take Profit
- Move your take profit point upward as the price rises.
- This locks in gains while giving room for further upside.
Stop Loss/Take Profit vs. Limit Orders
| Type | Trigger |
|---|---|
| Limit Order | Placed immediately in the order book waiting for a match. |
| Stop Order | Only placed as an order after the price is triggered. |
Stop orders don't sit in the order book, so "whales" cannot see them and "hunt" your stop loss—though in extreme market conditions, market price slippage can be severe.
OCO Orders (Advanced)
OCO stands for One-Cancels-the-Other:
- You place a "Take Profit sell order" and a "Stop Loss sell order" simultaneously.
- If either is triggered, the other is automatically cancelled.
- One setting covers both upside and downside.
Beginners just need to know it exists; using it makes things much easier.
How to Set Them on Binance
Spot Page
Select "Stop-limit" or "Stop-market" in the order type dropdown.
Futures Page
You can fill in the Take Profit and Stop Loss prices directly when placing your order.
Follow the specific steps in the app.
The "Whimsical" Nature of Stop Loss
Price triggers your stop loss → You sell → Then price bounces back → You regret it.
This is a very common phenomenon. How to handle it:
- Accept it: Stop loss is protection, not a prediction.
- Improve: Reset to a more reasonable stop-loss level next time.
- Don't: Stop using stop losses or cancel them mid-trade.
Slippage in Stop Losses
Since a stop loss often triggers a market order, slippage can occur.
For example, if you set a stop loss at 66,500, a large market sell-off might eat through orders down to 66,200. Your actual execution price might be 66,200, not 66,500.
To avoid this:
- Use "Stop Limit" (includes a minimum execution price).
- However, a limit order might not execute if the price continues to crash.
Beginners should generally stick to standard stop market orders.
What is "Stop Loss Hunting"?
In some low-cap coins, market makers might:
- Deliberately crash the price for a short time to hit a cluster of stop-loss levels.
- Trigger those sell orders.
- Buy back those coins at the low point.
- Then the price quickly recovers.
Beginners should avoid setting very tight stop losses on small-cap coins.
The Cost of Not Setting a Stop Loss
Common consequences for beginners who don't set stop losses:
- Down 10%, don't sell, waiting for a bounce.
- Down 30%, don't sell, "let's wait a bit more."
- Down 50%, now numb to the loss.
- Eventually ends up deeply "bag-holding."
If it's futures → Liquidation.
A "Stop Loss Discipline" Guide
| Situation | Stop Loss Setting |
|---|---|
| Spot Long-term Hold | None (unless an altcoin is dying) |
| Spot Short-term Trade | 5-10% |
| Futures 5x Leverage | 2-3% |
| Futures 10x+ Leverage | 1-2% |
| Futures 100x Leverage | Just don't do it |
Psychological Preparation
Triggering a stop loss is a "success":
- You protected your capital.
- You released the emotional stress.
- You kept funds ready for the next opportunity.
Not stopping loss → Massive loss → Mindset collapse → Failure of the entire investment plan.
FAQ
Q: Do stop-loss orders have fees?
A: Fees are charged at the Taker rate when the order is triggered and filled.
Q: My stop loss triggered but didn't fill?
A: This happens due to slippage in extreme market conditions. Consider using "Stop Market" or widening your stop-loss range.
Q: Can I change my stop loss repeatedly?
A: Yes. But repeatedly moving it further away means you have no discipline, which defeats the purpose.
Q: Can I buy back in after my take profit triggers?
A: Yes. But remember you've already locked in profit, which is a good thing.
Further Reading
- What is Leverage: Using SL in Futures
- What is Liquidation: The extreme result of no SL
- What is Spot Trading: Whether or not to use SL