# How to set a stop-loss and take-profit: the R-based method > Stops and targets decide the economics of every trade before it starts. Here is the R-based method: anchor the stop to structure, set the target from the risk, and let the maths filter the trades. - Canonical URL: https://forextradingcommunity.com/news/how-to-set-stops-and-targets/ - Type: Guide - Published: 2026-09-18 - Updated: 2026-09-18 - Publisher: Forex Trading Community (https://forextradingcommunity.com), FTC Editorial Team - Currencies: USD The stop-loss and the take-profit are the two decisions that determine whether a trading method can make money — before the entry's quality is even considered. The stop decides what being wrong costs; the target decides what being right pays; and the relationship between them is the trade's entire economics. Traders who set both from structure and risk trade with the maths on their side; traders who set them by feel trade with the maths against them. This guide sets out the R-based method: the stop anchored to structure, the target measured from the risk, and the filter that follows. The anchoring logic is in [where to place a stop-loss](/news/where-to-place-a-stop-loss/); the economics in [risk-reward and expectancy](/news/risk-reward-ratio-win-rate-and-expectancy/). ## What R means R is the amount risked on a trade — the distance from entry to stop, expressed in money. A trade that risks $50 and makes $100 has made 2R; a trade that risks $50 and loses $30 has lost 0.6R. Measuring results in R instead of money removes account size from the analysis and turns every trade into the same unit: multiples of its own risk. The R-based method's first move is therefore to define R before anything else: the stop distance times the pip value, kept at the plan's risk percentage. The [position sizing guide](/news/position-sizing-and-risk-per-trade/) has the full calculation. ## The stop: anchored to structure The stop's job is to sit where the trade idea is wrong, and the trade idea lives at the structure it was built on. The anchors: **Beyond the level.** A bounce trade at support stops below the support zone — the point where the support has failed and the idea is dead. A breakout trade stops beyond the broken level, where the break is proven fake. The [support and resistance guide](/news/support-and-resistance-levels-explained/) defines the zones. **Beyond the swing.** A trend trade stops beyond the pullback's extreme — the lower low that would break the trend's structure. The [trend guide](/news/how-to-trade-trends/) has the structure rules. **Beyond the volatility.** Where no clean structure exists, the stop is volatility-based: a multiple of ATR that places it outside the pair's normal noise. The [ATR guide](/news/average-true-range-atr-and-volatility-stops/) has the method. The common errors are both fixed by the anchoring rule. Stops too close — inside the noise, where ordinary movement reaches — die before the idea is tested. Stops at arbitrary pip distances ignore the structure the trade was built on. The anchor is always: where is the idea wrong? ## The target: measured from the risk The target's job is to pay for the risk, and the R-based method sets it as a multiple of the stop distance: **The minimum is the filter.** The standard floor is 2R: the target must be at least twice the stop distance, or the trade is not taken. The filter's maths is in the [expectancy guide](/news/risk-reward-ratio-win-rate-and-expectancy/): at 2R, a method can be profitable at win rates below 40%; at 1R it needs to win far more than half the time. **Structure decides the rest.** The target sits at the next level in the trade's direction — the next support or resistance, the range's opposite boundary, the measured move of the pattern. When the structure's target clears the 2R floor, the trade passes; when it doesn't, the trade is skipped, whatever the entry looked like. **Partials are a choice, not a default.** Splitting the target — half at 1R, the rest at 2R or beyond — changes the economics and should be tested against the single-target version. The [exit testing in the expectancy guide](/news/risk-reward-ratio-win-rate-and-expectancy/) covers how to compare the schemes. ## The R-based workflow The method compresses into a four-step routine run before every trade: 1. Mark the structure — the level or swing the trade is built on. 2. Place the stop beyond it, with a buffer for the spread. That distance, in money, is 1R. 3. Find the target at the next structure in the trade's direction. Measure it in R. 4. Apply the filter: below the plan's minimum R — commonly 2R — the trade is skipped, no exceptions. The routine takes a minute and performs the plan's entire risk architecture. The trades that pass it are the ones where being right pays more than being wrong costs — the only trades worth taking. ## The mistakes the method prevents The R-based method exists to prevent the three classic errors: **The arbitrary stop.** The pip-distance stop that ignores structure dies of noise or leaves the idea untested. The anchor fixes it. **The mismatched target.** The target closer than the stop — the 3-pip-stop, 1-pip-target scalps that need near-perfect win rates to survive. The 2R floor filters them. **The feel-based exit.** The target and stop decided after entry, under a live position's emotional pressure. The pre-trade routine removes the decision from the pressured moment — the same pre-commitment logic as the [trade management guide](/news/how-to-manage-open-positions/). Stops and targets are not accessories to the trade; they are the trade's economics, decided in advance. Anchor the stop to structure, measure the target in R, and let the filter refuse the trades that don't pay — and the maths, which punishes everyone else, starts working for you. ## Sources - [US Commodity Futures Trading Commission](https://www.cftc.gov/) - [Bank for International Settlements](https://www.bis.org/) ## Common questions ### What is the R in trading? R is the amount risked on a trade — the stop distance in money. Results are measured in multiples of R: a trade that risks $50 and makes $100 has made 2R, whatever the account size. ### Where should I place my stop-loss? Beyond the structure the trade was built on — beyond the level, the swing or a volatility multiple. The stop sits where the trade idea is wrong, not at an arbitrary pip distance. ### What is a good risk-reward ratio? A minimum of 1:2 is the common floor: the target at least twice the stop distance. At 2R, a method profits at win rates under 40%; at 1R it needs to win far more than half the time. ### Should I skip trades with a bad risk-reward? Yes. If the structure's target cannot clear the plan's minimum R, the trade is skipped whatever the entry looks like. The filter is what keeps the method's maths profitable. ### Why measure results in R instead of money? R removes account size from the analysis and makes every trade comparable. The journal's R records reveal the method's true expectancy, which money-denominated results obscure. --- This article is for information only and is not financial advice. Trading forex and CFDs carries a high risk of losing money.