Stop Losses in ICT: 4 Simple Steps + Real World Example

In ICT (Inner Circle Trader) methodology, stop losses play a critical role in risk management and trade execution.

ICT emphasizes precise stop-loss placement to protect capital, minimize unnecessary losses, and align with institutional trading strategies.

This guide explores the concept of stop losses in ICT, detailing how to set them effectively, with examples for better understanding.

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1. What Are Stop Losses in ICT?

A stop loss is a predefined price level at which a trader exits a trade to prevent further losses.

In ICT, stop-loss placement is strategic and tied to key market structure elements, such as:

1. Liquidity Pools: Placed above or below areas where retail traders commonly set stop losses.
2. Fair Value Gaps (FVGs): Stop losses are positioned just beyond these gaps when trading reversals.
3. Order Blocks: Stops are placed below or above the relevant order block, depending on the trade direction.

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2. Why Stop Losses Are Critical in ICT?

1. Risk Management: Protects against significant losses in case the market moves against your trade.
2. Avoiding Liquidity Traps: ICT emphasizes understanding where retail traders set stops to avoid being part of liquidity sweeps.
3. Institutional Perspective: Proper stop-loss placement ensures alignment with smart money moves.

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3. How to Set Stop Losses in ICT

1. Using Market Structure

Stop losses are placed based on key market structure elements:

• Swing Highs and Lows: Position stops slightly above a swing high for a short trade or below a swing low for a long trade.
• Break of Structure (BOS): Stops can be placed beyond the level confirming the BOS.

Example:

• Scenario: EUR/USD forms a swing low at 1.1000 before moving upward.
• Trade: Long entry at 1.1015 after a bullish order block forms.
• Stop Loss: Placed at 1.0995, slightly below the swing low.

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2. Order Blocks

Order blocks provide strong areas of institutional activity.

Stops are placed outside the boundaries of the order block.

• Bullish Order Block: Stop loss goes below the block’s low.
• Bearish Order Block: Stop loss goes above the block’s high.

Example:

• Scenario: A bullish order block forms on GBP/USD between 1.3050–1.3070.
• Trade: Enter long at 1.3080.
• Stop Loss: Place at 1.3045, below the order block.

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3. Fair Value Gaps (FVGs)

When entering trades using FVGs, stops are set beyond the gap boundaries.

Example:

• Scenario: An FVG forms on AUD/USD between 0.7100–0.7120.
• Trade: Enter short at 0.7115.
• Stop Loss: Place at 0.7125, slightly above the FVG.

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4. Killzones and Liquidity Sweeps

Stops are strategically placed during killzones (e.g., London Open) to account for liquidity sweeps.

ICT advises placing stops where liquidity is unlikely to be targeted.

Example:

• Scenario: During the New York Open, USD/JPY sweeps liquidity at 110.50 and reverses downward.
• Trade: Short entry at 110.45.
• Stop Loss: Place at 110.55, just above the liquidity sweep.

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4. Adjusting Stop Losses: ICT Guidelines

1. Trail Stops with Structure: Adjust stops as new structure points form, such as swing highs or lows.
2. Risk-to-Reward Ratios: Maintain at least a 1:2 risk-to-reward ratio.
3. Avoid Premature Moves: Do not move stop losses too early to avoid being stopped out during normal market noise.

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5. Common Mistakes in Stop-Loss Placement in ICT

1. Setting Stops at Obvious Levels:

Retail traders often place stops at round numbers or visible swing points, which institutions target.

2. Ignoring Liquidity Zones:

Placing stops without considering liquidity pools increases the risk of stop hunts.

3. Not Accounting for Volatility:

Stops set too tight can result in unnecessary exits.

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6. Real-World Example: Stop Loss in a Bullish ICT Trade

1. Scenario:

EUR/USD is in an uptrend, and a bullish order block forms at 1.1150–1.1160 during the London Open.

The price retraces to the order block before moving upward.

2. Steps:

1. Entry: Long at 1.1165 after a bullish confirmation.
2. Stop Loss: Place at 1.1145, below the order block.
3. Target: Set at 1.1200, aligning with the next liquidity pool.

3. Result:

The price respects the order block and rallies to 1.1200, achieving a 35-pip profit with a 20-pip stop-loss risk.

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7. Conclusion

Stop losses in ICT are more than just a tool to cap losses—they’re a strategic part of aligning with institutional behavior.

By leveraging market structure, order blocks, FVGs, and liquidity concepts, traders can set stops that protect their capital while maximizing the probability of trade success.