How to set stop loss and take profit? Take profit and stop loss - what is it?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Questions about take profit and stop loss: "What is it? How to determine them correctly?" - excite every trader, only professionals and beginners treat this differently. The former tend to hone their own strategy to the ideal. And the latter are engaged in theory, quickly jumping from one trading option to another, often not paying due attention to the limiters of the transaction.

Limiting losses and making profits

The main question a trader has after opening a trade? on how to determine the values of stop orders to:

• profit was the highest;
• losses were the least.

Every beginner 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 constraints without which successful trading is impossible. If they are available, transactions are closed automatically, and this happens according to pre-set valuesprice.

Take profit - profit fixing level. That is, first, the trader determines the value that the price will reach by the method of analysis. And sets take profit at the level of profit from the market.

Stop loss is meant to limit losses. It is used to save capital in case of an unsuccessful transaction. That is, the trader deliberately determines the acceptable level of losses and sets a limiter on it.

Stop loss for profit

There are exceptions to every rule, this also applies to Forex. Stop loss and take profit are tools from which you should always get the most out of it. It's no secret that the most successful transactions are made on a trend reversal. If it is clear that the direction of movement will continue for some time, then it is not advisable to close the order.

In this case, you need to move the stop loss along the trend. As a result, it will turn out to fix the profit. That is, the price in any case will turn around and go down, but the trader will still win. Albeit not as large as it was planned in the analysis. This method shows you how to set stop loss and take profit in order to use them for profit.

This does not have to be done manually. It is enough to set the trailing stop function available in the terminal. When activated, the stop loss automatically follows the price. To do this, open the context menu on an open order with the right mouse button, then “trailing stop” and find the desired value. smallesthis level of those offered by the system is 15 points.

Margin call as stop loss

Traders with significant experience in the market may adopt an aggressive style of work. They use a margin call as a stop loss. In this case, the deal is opened with a large lot.

If the price reverses in the direction opposite to the planned one, big losses are expected. They are limited to margin calls. In the case of a correct forecast and a profit of 10-20 points, the deposit increases by 6-15%. When a margin call is triggered, the losses are 10-15%. That is why the method does not need to be used by beginners. It is understandable and acceptable for experienced traders involved in scalping and pipsing.

Questions Traders Solve

Traders face these challenges every day:

1. Price falls short of profit cap.
2. The trend interrupts it and continues to move (lost profits).
3. Price often hits stop loss.
4. Permanent losses.

That is, setting stop loss and take profit is an integral part of the activity of any trader. Merchants must constantly improve their skills by working to correct these problems and prevent them as much as possible.

Stop loss and take profit are chosen depending on various factors

The correct definition of limiters depends on the strategy. But even within the same trading method, placing stop loss and take profit may differ. Every traderis engaged in the gradual creation of a strategy acceptable only to him.

Beginners first of all study fixed stop loss and take profit. What it is? Actually, nothing complicated. Limiters are set at a predetermined distance from the sell or buy prices, 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 determining the trend potential. The method has proven itself in practice as the most acceptable for novice traders.

Guided by Fibonacci levels, time zones, round numbers and other ways, you can determine stop loss and take profit. What is it, if not the correctness of the actions taken, knowledge of the strategy and the situation on the market? You need to understand that the point here is not how these values are set. And in the correct use of the chosen method.

Previous low (high)

If a stop loss is placed at the previous low or high, the goal is to prevent it from being falsely triggered. It happens that the stop loss 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 reverses and moves again in the previously predicted direction. So it turns out that with a correct forecast of the direction of movement, the trader suffers a loss. This is very unpleasant, since it would seem that the take profit and stop loss are correctly defined.

"What is this obstacle and howcope with it?" - a question that has always worried traders. The solution is to constantly move the stop loss behind the price at the new lows and highs that form. The result is the closing of the trade at the limiters, but in any case in a positive way.

Take profit on bounce and breakout

Guided by the support and resistance lines, you can successfully open a deal, and place take profit in one of two ways:

1. When the price rebounds from the trend lines. When a trade is opened when the chart bounces off the support level, the stop loss is placed behind it. This helps to reinsure yourself in the event of a possible price breakout of the trend line. The same applies to the resistance level.
2. When trend lines are broken. If a trade is opened when a support level is broken, a stop loss must be placed at the resistance line and vice versa.

How is trailing stop useful?

In order not to follow the market without interruption, by moving the loss limiter, you can apply a trailing stop. Its value remains constant, since it is placed at a certain distance from the profit and moves with the price in accordance with this indicator. That is, it implies profit taking when the price increases by 35 or 50 points. When the chart reverses, the trader definitely remains in profit or closes a breakeven trade.

Trading on highly volatile pairs requires the use of an improved viewtrailing stop. In such programs, its value moves after the price passes the number of points specified by the trader, for example, every 50.

How to determine take profit and stop loss?

The quality of work depends not only on the correctness of the instruments, but also on the nature of the trader. Therefore, only depending on your own preferences, you need to choose a system by which take profit and stop loss are determined. What does this mean? The selected limiters are calculated depending on the strategy. At the same time, the systems of work of all traders differ from each other.

Don't ignore the stop loss hoping you can manually close the trade on time. In cases of an increasing minus, a novice trader may hope for a chart reversal or believe that it is not necessary to use this order. After all, suddenly the deal will be closed, and the price will again turn in the right direction. After repeatedly losing a deposit, views change. And to avoid internal conflicts, stop loss should be used.

How to set stop loss and take profit, tips suggest:

1. Limiters should always be used.
2. 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 be at least 100 points.

These orders close the contract after the price reaches a certain level. It does not matter if the work computer is turned on.

Set stop loss

There are several ways to define a loss limiter. One of them is to identify the lows and highs on the price change chart. And for this you need to build a trend. For an ascending chart, a buy trade is opened, while the low points are analyzed. In a downtrend, you should be guided by the highs. Then, if the largest channel width is 30 pips, then the stop loss value is the same.

You can also follow the trend lines. In this case, in a buy trade, a stop loss is placed at a distance of 10 pips from the support line.

You can set limits depending on the type of currency:

1. GBP is 30–35 p.
2. CHF – 30–35 p.
3. EUR – 25–30 p.

In this case, the volatility of currency pairs is taken into account. You need to be based on the daily rate and place a stop loss at a distance of 30% from this value. If EUR/JPY has a volatility of 60 pips, then the stop-loss is 20 pips. 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. To do this, the stop-loss order is moved closer to the current price value. Therefore, for a new point of its installation in an uptrend, you should choose the minimum closest to the current price.

Take profit determination

The greatest value of the function is manifested in cases of instantaneous contact with the price of the proper level. When she does not linger on this meaning, but onlytouches it once, the trader is physically unable to react. The science must be mastered, as placing stop loss and take profit is an art, and the result is really worth the effort.

You must always take into account that the take profit must exceed the stop loss of the same trade. That is, with the same number of successful and unprofitable orders, profit should be made.

Tips for take profit:

1. It is best to set a profit limiter before the expected trend reversal, using the constructed price channel in the calculation.
2. The reverse approach is used for the upward movement. You need to put a take-profit at the point of the approximate maximum before a new rollback.
3. Similar to stop loss, take profit can be set based on the volatility of the currency pair. But for this you need to correctly predict the trend movement.

How to place orders automatically?

To facilitate the installation of limiters, there is an indicator. Stop loss and take profit are determined when the system opens a position, which greatly simplifies the work. This method is very convenient, especially since a huge number of free programs are available for download on specialized sites.

To set automatic stop loss and take profit, you can use the adviser. After installing the program, two bands are displayed on the chart: blue (take profit), red (stop loss). Special settings allow you to make the programworked in accordance with the preferences of the trader.

In fact, setting limits manually disciplines traders, accustoming them to systematic work based on a previously drawn up trading plan. A trader should carefully analyze the situation on the market before opening a position.

If you learn how to set stop loss and take profit, you can increase the number of profitable trades. Proper placement of stop loss and take profit is the key to successful trading. I would like to wish all traders more orders closed at the correctly set take profit.