What it does
long: stop = entry × (1 − stop%) target = entry × (1 + target%)
short: stop = entry × (1 + stop%) target = entry × (1 − target%)
Straightforward, and the reason it is worth a page is the third output rather than the first two. Any pair of percentages implies a ratio, and any ratio implies a win rate:
win rate needed = 1 ÷ (1 + target% ÷ stop%) × 100
A 2% stop with a 6% target is 1:3, which needs 25% of trades to reach the target. That is a claim about your hit rate, and it is checkable — most people set the percentages and never check it.
Percentage stops: useful ceiling, poor reason
A percentage stop knows nothing about the chart. It does not know where the level is, where the range boundary sits, or how far the instrument routinely travels in an hour. It knows one thing: how much you are prepared to lose.
That makes it genuinely useful as a ceiling — a rule that no single trade exceeds a fixed share of the account — and weak as an exit reason. An exit reason answers "at what price is the idea wrong". A percentage answers "at what price am I uncomfortable". They are different questions, and only the first carries information you can learn from afterwards.
The practical rule: place the stop where the idea is invalidated, then check the percentage. If the percentage is too large, the position is too big — that is a sizing problem, not a stop problem, and the fix is the position size, not a tighter stop.
Why very tight stops fail on their own
Below roughly half a percent from entry, a stop on most liquid instruments sits inside ordinary noise. It will be reached by movement that has nothing to do with the trade being wrong.
The result is a specific and expensive pattern: a high loss rate on trades that were directionally correct, each loss small, each one paying the spread. The strategy looks like it has a win-rate problem. It has a stop-placement problem, and the two are treated very differently.
Crypto makes this worse because volatility is higher and because leverage tempts people towards tighter stops to keep the money risk constant. The alternative — wider stop, smaller position, same money at risk — produces the same risk with far fewer stop-outs.
Check the stop against the liquidation
On a leveraged position there is a second price you did not choose: the exchange's liquidation level. If the stop sits beyond it, the stop never runs. The position is closed first, by the exchange, at its price and with a fee.
One subtraction is enough. The stop must be nearer to entry than the liquidation, with room left for funding on anything held overnight. A well-reasoned stop that cannot execute is worse than no plan at all, because it feels like protection.