Stop Loss & Take Profit: Protecting Your Prediction Market Positions
Why Risk Management Matters
Even the best traders have losing trades. What separates successful traders from the rest is how they manage risk. Stop loss and take profit orders are your first line of defense.
What is a Stop Loss?
A stop loss automatically exits your position when it falls to a certain price. This limits your downside on any single trade.
Example
You buy YES shares at $0.50. You set a stop loss at $0.35. If the price drops to $0.35, your position automatically closes, limiting your loss to $0.15 per share (30%).
What is Take Profit?
A take profit automatically exits your position when it reaches a target price. This locks in gains before the market can reverse.
Example
You buy YES shares at $0.50. You set a take profit at $0.75. If the price rises to $0.75, your position automatically closes, securing a $0.25 profit per share (50%).
Setting Effective Levels
Stop Loss Guidelines
- •Too tight: You'll get stopped out on normal price fluctuations
- •Too loose: You'll take bigger losses than necessary
- •Rule of thumb: 15-25% below your entry price
Take Profit Guidelines
- •Too aggressive: You might never hit your target
- •Too conservative: You leave money on the table
- •Rule of thumb: 25-50% above your entry price (risk/reward of at least 1:1.5)
Risk/Reward Ratio
Always consider your risk/reward before entering a trade:
| Stop Loss | Take Profit | Risk/Reward |
|---|---|---|
| -20% | +20% | 1:1 (break-even) |
| -20% | +40% | 1:2 (good) |
| -15% | +45% | 1:3 (excellent) |
Aim for at least 1:1.5 risk/reward on every trade.
Position Sizing
Risk management starts before you enter a trade. Never risk more than a small percentage of your total capital on any single position.
The 2% Rule
A common guideline: never risk more than 2% of your total capital on a single trade.
Example: With $1,000 total capital, your max risk per trade is $20. If your stop loss is 20% below entry, your max position size is $100.
Oddy's Risk Management Features
Oddy provides built-in tools to manage your risk:
- Default TP/SL: Set default take profit and stop loss percentages in Settings
- Per-Trade Override: Customize levels for specific trades
- Automatic Execution: Oddy monitors prices and executes exits automatically
- Position Dashboard: Track all open positions and their risk levels
Common Mistakes
1. Moving Your Stop Loss
The temptation to "give it more room" when a trade goes against you. This defeats the purpose of risk management.
2. No Stop Loss at All
"I'll just watch it" leads to larger losses than planned. Always set a stop loss.
3. Unrealistic Take Profit
Setting take profit at $0.99 when you bought at $0.80 might never trigger. Be realistic about market movement.
4. Ignoring the Risk/Reward
Entering trades with poor risk/reward (like -30% stop loss, +10% take profit) is a losing strategy long-term.
Conclusion
Stop loss and take profit orders are essential tools for any serious trader. They remove emotion from trading decisions and protect your capital. Set them on every trade, and stick to your plan.