Stop Loss and Take Profit Calculators

Difference Between Calculators

This page features two different types of stop loss and profit calculators. It is up to you which you think is best for you.

ATR Stop Loss and Profit Calculator

This calculator uses Average True Range (ATR) as a basis for setting the stop loss and profit target. It’s our preferred stop loss and take profit calculator here at Stock Market Guides.

We like it for two reasons:

1. The ATR calculates a stock’s average price movement in the recent past, which makes it a good measuring stick for how to measure stock price movements from the time the trade is entered.


2. ATR gives an apples-to-apples metric that can measure equivalent price movements between stocks.
   
   If you take two stocks and say they both moved up one ATR in price, then you know they both moved up an amount that equals one day’s average price range of their own stock. In other words, if you use ATRs, then you know each different stock has to move up the same amount relative to its own normal price activity.
   
   On the other hand, if you take two stocks and say they both moved up 5%, that could mean a giant move for a sleepy stock or a quiet move for a volatile stock. Percentages aren’t uniform between stocks.

Percentage Profit and Stop Loss Calculator

This calculator uses a percentage as a basis for setting the stop loss and take profit.

A lot of people like using this approach because it’s simple. It doesn’t need any extra inputs like the ATR stop loss calculator does. You simply subtract the percentage from the entry price and set your stop loss there, and you add the percentage from the entry price and set your take profit there.

It also makes it easy for some to quantify the risk they’re taking since they know the stop loss is set at a specific percentage loss.

A drawback to this approach is that using a percentage can be arbitrary in terms of the stock’s likelihood to avoid the stop loss or reach the profit target.

Also, if you always use the same percentage for each stop loss, it might equate to differing odds of success between stocks since each stock has different levels of price volatility.

Tradeoffs Between Stop Loss Calculator Values

Whether you use the ATR stop loss calculator or the percentage stop loss calculator, you can choose a stop loss value that is relatively close to the entry price, far from the entry price, or somewhere in between.

There are tradeoffs with each choice:

Stop Loss That is Close to Entry Price

If you use a stop loss that is close to the entry price, then it limits how much of a loss you can take on a per-trade basis. On the flip side, you could end up getting stopped out of trades that ultimately could have been profitable by setting your stop loss too close.

Having a stop loss that is close might also increase the number of losses you take. They might all be relatively small losses, but from a psychological level, it can be hard for many people if there are more losses than wins.

One thing to be careful about is if your account size is less than $25,000, then US brokerages only allow you to have 3 or less day trades in any given week. It’s known as the Pattern Day Trading Rule. A day trade is considered a trade that you enter and exit on the same day.

So if you use the stop loss calculator and pick the lowest value, you might end up having a lot of same-day entries and exits, which could cause you to violate the Pattern Day Trading Rule.

Stop Loss That is Far from Entry Price

If you use a stop loss that is far from the entry price, then it means if you hit the stop loss, that loss will be for a bigger amount. On the flip side, you are also giving your trades the room to breathe, which might work in your favor (especially if you’re trading with a statistical edge).

Having a stop loss that is far might also decrease the number of losses you take. Although each position that gets stopped out will be a bigger loss, there might be fewer of them, which could be easier to manage psychologically.

Our research at Stock Market Guides supports the idea of a stop loss that is far from the entry price (or even no stop loss at all). Many of the trade strategies we research show better backtested results with that approach.

Tradeoffs Between Take Profit Calculator Values

Whether you use the ATR take profit calculator or the percentage take profit calculator, you can choose a take profit value that is relatively close to the entry price, far from the entry price, or somewhere in between.

There are tradeoffs with each choice:

Take Profit That is Close to Entry Price

If you use a take profit that is close to the entry price, then it limits how much of a profit you can take on a per-trade basis.

With that said, you could end up hitting your profit target on a high percentage of trades. This could make things easier on you psychologically and emotionally.

One thing to be careful about is if your account size is less than $25,000, then US brokerages only allow you to have 3 or less day trades in any given week. It’s known as the Pattern Day Trading Rule. A day trade is considered a trade that you enter and exit on the same day.

So if you use the take profit calculator and pick the lowest value, you might end up having a lot of same-day entries and exits, which could cause you to violate the Pattern Day Trading Rule.

Profit Target That is Far from Entry Price

If you use a profit target that is far from the entry price, then it means you are giving your winners more room to run.

On the flip side, having a take profit that is far might also decrease the number of wins you earn. Although each position that hits the profit target will be a bigger win, there might be fewer of them, which could be harder to manage psychologically.

Ideal Take Profit and Stop Loss Calculator Values

Ultimately, there is no perfect stop loss and take profit formula to use. There are tradeoffs with all of them.

Not only that, but so much of finding the right take profit and stop loss values to use depends on the individual trader. It’s important to find something that works for you. If you can’t bear using a close stop loss, for example, then there’s no reason to keep using it.

With that in mind, the research and backtesting we’ve done support a stop loss and take profit setup as follows:

• Use the ATR stop loss calculator and take profit calculator.


• Set a medium-range profit target (1.5 ATRs). This is not so close as to trigger Pattern Day Trader concerns, but it’s also close enough to potentially tilt the win rate a little further in our favor (which is good psychologically).


• Either use no stop loss or choose a value from the ATR stop loss calculator that is distant. This gives trade the room to breathe.

When using the trading strategies we feature with our service, those settings had the best results of all the ones we backtested.

Questions About Profit and Stop Loss Calculators

If you have questions about how to use the calculators, or if you have questions about any aspect of the stock market or trading in general, you can reach out to us any time and we’ll be ready to help.