Questions about take profit and stop-loss: "What is it? How to identify them correctly?" - Excite every trader, that's only professionals and beginners relate to this in different ways. For the first, it is proper to hone your own strategy to the ideal. And the latter are engaged in theory, rapid jumping from one trade option to another, often not paying due attention to delimiters of the transaction.
Limiting losses and making profits
The main question that arises from the trader after the opening of the deal? On how to determine the value of stop orders, so that:
- Profit was maximum;
- The losses turned out to be the smallest.
Each newcomer is interested in the concepts of take-profit and stop-loss. What are these terms and for what purpose are they used? These are the limits, without which successful trade is impossible. If they are available, the deals are closed automatically, and this happens according to the pre-set prices.
Take-profit - the level of fixing the benefits. That is, first by the method of analysis, the trader determines the value that the price will reach. And exposes the take-profit at the level of receiving profit from the market.
Stop loss is intended to limit losses. Used for the purpose of preserving the capital in case of an unsuccessful transaction. That is, the trader deliberately determines the allowable level of losses and places a limiter on it.
Stop loss for profit
In each rule there are exceptions, this also applies to Forex. Stop-loss and take-profit are tools from which you should always derive maximum benefit. It's not a secret for anyone that the best deals are made on a trend reversal. If you see that the direction of movement is still preserved for a while, then closing the warrant is not appropriate.
In this case, you need to move the stop-loss on the trend. As a result, you will be able to record profits. That is, the price in any case will unfold and go down, but the merchant will still be the winner. Let and not so large, as it was planned at the analysis. This method shows how to set a stop-loss and take profit to use them for profit.
It does not have to be done manually. It is enough to set the trailing stop function available in the terminal. When it is activated, the stop-loss is automatically followed by the price. To do this, open the context menu on the open order, then "trailing stop" and find the desired value. The smallest level of it that the system offers is 15 points.
Margin call as a stop-loss
Traders with significant experience in the market can adhere to aggressive style in work. As a stop-loss they use the margin call. In this case, the transaction opens with a large lot.
If the price is reversed in the direction opposite to the planned one, then large losses are expected. They are limited to the margin call. In the case of a correct forecast and a profit of 10-20 points, the deposit increases by 6-15%. When the margin call is triggered, the losses are 10-15%. That's why the method does not need to be applied to beginners. It is understandable and acceptable for experienced traders engaged in scalping and pipsing.
Questions Solved by Traders
Traders face such challenges on a daily basis:
- The price does not reach the profit limit.
- The trend interrupts it and continues to move (loss of profit).
- The price often affects the stop-loss.
- Constant losses.
That is, the installation of stop loss and take profit is an integral part of any trader's activity. Traders must constantly improve their skills, working to correct these problems and to prevent them as much as possible.
Stop-loss and take-profit are chosen depending on various factors
The correctness of delimiting depends on the strategy. But also within the limits of one trading method an exposure stop-loss and take-profit can differ. Each trader is engaged in the gradual creation of an acceptable strategy only for him.
Beginners, first of all, study a fixed stop-loss and take-profit. What it is? In fact, nothing complicated. Limiters are exposed at a given distance from the sale or purchase price regardless of the situation and the asset. At 100 p. (Take-profit), 50 p. (Stop-loss), the goal is to capture part of the movement. This method does not imply a determination of the trend potential. The method proved itself in practice as the most suitable for beginners traders.
Guided by the Fibonacci levels, time zones, round numbers and other ways, you can determine stop-loss and take-profit. What is this, how is the correctness of the actions performed, the knowledge of the strategy and the situation on the market? It is necessary to understand that the essence here is not how these values are exposed. And in the correct use of the chosen method.
Previous minimum (maximum)
If the stop loss is set at the previous minimum or maximum, the goal is to prevent its false triggering. It happens that the limiter of losses is placed at a distance of 50 points (fixed). At the same time, it is constantly knocked down by the price, but after that the trend unfolds and again moves in the previously predicted direction. So it turns out that with the right prediction of the direction of movement, the trader suffers a loss. This is very unpleasant, since it would seem that the take-profit and the stop-loss are correctly determined.
"What is this obstacle and how to cope with it?" - a question that always worried the traders. The solution is to constantly move the stop-loss at the price of the new emerging minima and highs. The result is closing the deal on the limiters, but in any case in a positive way.
Take-profit on rebound and breakdown
Guided by the lines of support and resistance, you can successfully open a deal, and take the profit profile in one of two ways:
- When the price rebounds from the trend lines. When the deal opens when the chart is broken off from the support level, the stop-loss is placed behind it. This helps to reinsure itself in the event of a possible break through the price of the trend line. The same applies to the resistance level.
- In the breakdown of trend lines. If the deal opens when the support level breaks through, the stop loss is required to be placed near the resistance line and vice versa.
What is convenient trailing stop?
In order not to follow the market without moving, moving the limiter of losses, you can apply a trailing stop. Its value remains constant, since it is placed at a certain distance from the profit and moves behind the price in accordance with this indicator. That is, it implies fixing profits when the price increases by 35 or 50 points. When the schedule is reversed, the trader uniquely remains in profit or closes a breakeven transaction.
Trading on high volatile pairs requires an improved type of trailing stop. In such programs, its value moves after passing the price specified by the trader number of points, for example, every 50.
How to determine the take-profit and stop-loss?
The quality of the work depends not only on the correctness of the tools, but also on the nature of the trader. Therefore, only depending on your own preferences you need to choose a system by which the take-profit and stop-loss are determined. What does this mean? Selected limiters are calculated depending on the strategy. In this case, the systems of work of all traders differ among themselves.
Do not ignore the stop loss, hoping that it will turn out to manually close the deal on time. In cases of increasing minus, a novice trader may hope for a reversal of the schedule or believe that it is not necessary to use this order. After all, suddenly the deal will close, and the price will again turn in the right direction. After repeated loss of deposit, views change. And to avoid internal disagreements, the stop-loss should be used.
How to set a stop-loss and take profit, prompt tips:
- Limiters must always be used.
- The ratio of stop loss and take profit to each other should not be less than 1: 2, preferably 1: 3. That is, if the stop loss is located at a distance of 50 points from the value of the purchase price, the take-profit should equal 100 points, at least.
These orders close the contract after the price reaches a certain level. It does not matter if the working computer is turned on.
There are several ways to determine the loss limiter. One of them is to reveal the minima and maxima on the price change chart. And for this it is necessary to build a trend. For an uptrend, a buy transaction is opened, with minimum points being analyzed. With a downtrend, you should be guided by the highs. Then, if the maximum channel width is 30 points, then the stop-loss value is the same.
You can also follow the trend lines. In this case, in the transaction for the purchase of a stop loss is placed at a distance of 10 points from the support line.
You can set the limiters, depending on the type of currency:
- GBP is 30-35 points.
- CHF - 30-35 p.
- EUR - 25-30 p.
In this case, the volatility of currency pairs is taken into account. It is necessary to be based on a daily indicator and place a stop-loss at a distance of 30% of this value. If the EUR / JPY volatility is 60 points, the stop-loss is 20 points. This method is acceptable for time intervals of at least 4 hours.
If the price moves in the right direction, then the profit should be fixed. For this, the stop loss order is moved closer to the current price value. Therefore, for a new point of its installation with an uptrend, you should choose the lowest that is close to the current price.
Definition of Take Profit
The greatest value of the function is manifested in cases of instantaneous contact with the price of the proper level. When it does not stay on this value, but only once affects it, the trader is not physically able to react. Science must be mastered, because putting a stop-loss and take-profit is an art, and the result is really worth the effort.
It must always be taken into account that the take-profit should exceed the stop-loss of the same transaction. That is, with the same number of successful and unprofitable orders, profits should be obtained.
Tips for Take Profit:
- It is best to expose the profit limiter in anticipation of a reversal of the trend, using the constructed price channel when calculating.
- For the upward movement, a reverse approach is used. It is necessary to set the take-profit at the point of the approximate maximum before the new pullback.
- By analogy with the stop-loss, the take-profit can be established based on the volatility of the currency pair. But for this it is necessary to correctly predict the trend movement.
How to place orders automatically?
To facilitate the installation of the limiters, there is an indicator. Stop loss and take profit are determined when the position is opened by the system, which greatly facilitates the work. This method is very convenient, especially on specialized sites for downloading a huge number of free programs.
To set an automatic stop-loss and take profit, you can use an advisor. After installing the program on the chart, two bands are displayed: blue (take-profit), red (stop-loss). Special settings allow you to make the program work according to the trader's preferences.
In fact, setting the limiters manually disciplined the traders, accustoming them to systemic work on the basis of a previously drawn up trading plan. The trader should make a thorough analysis of the market situation before opening the position.
If you study how to set a stop-loss and take-profit, then you can increase the number of profitable trades. Correctly placing stop-loss and take-profit is the key to successful trading. I would like to wish all traders more orders, closed on a correctly established take-profit.