How to Set Take-Profit and Stop-Loss for HK/US Stocks (the 10%/5% Rule)
Take-profit and stop-loss aren't "leave when it feels about right." They're two numbers you write down before you buy: how much you'll lose at most, and when you'll walk with a gain. Quantify them and emotion has nowhere to hide.
Stop-loss: answer "what's my max loss?" first
A stop's job isn't to call the bottom — it's to cap the loss on a single trade. Three common ways to set it:
- Fixed percentage: 5%–10% below cost; 10% is the most common — simple and backtestable.
- Technical level: exit if it breaks a key support or the 20-day moving average — fits the chart but needs watching.
- Volatility (ATR): stop distance = N × ATR, giving more volatile stocks wider room so normal noise doesn't shake you out.
Whichever you pick, the principle is the same: set it before you buy, and size it so a single loss stays under 3%–5% of total capital (see position sizing).
Take-profit: don't give the gains back
Harder than stopping out is taking profit — you won't leave when it's up, then a pullback eats it. Three executable approaches:
- Fixed target: trim or exit mechanically at +10%/+20%.
- Trailing stop: raise your stop as price makes new highs — let winners run, exit only on a defined pullback.
- Scale out: sell half at target, trail the rest — balancing "money in the bank" with "riding the trend."
Combine into one backtestable rule
Write both as explicit conditions, for example:
| Parameter | Setting |
|---|---|
| Stop-loss | cost -5% |
| Take-profit | +10% |
| Max hold | 10 trading days |
A rule like this can be backtested directly — see its historical win rate, profit factor, and max drawdown on your own watchlist instead of guessing.
Summary
The hard part of stops and targets was never "what number" — it's whether you execute the number you set. Put both up front, quantified and backtestable, then turn them into a checklist you follow daily, and emotion loses its opening.
FAQ
What percentages should I use for stop-loss and take-profit?
There's no universal number. Short-term traders often use a -5% stop / +10% target; longer-term stops can widen to 10%–15%. What matters is keeping single-trade risk under 3%–5% of capital, setting it in advance, executing consistently, and validating by backtest.
Should I use a fixed target or a trailing stop?
Use a fixed target if you want to lock certain gains and trade often; use a trailing stop to ride big trends and tolerate pullbacks. Many people scale out: bank half at target, trail the rest.