For trading to bring the trader income, it is necessary to have several conditions. One of them is the quality signals that allow opening orders at the optimal point. However, successful entry into the market does not guarantee successful completion of the deal. It is very important to limit the possible loss and determine the level at which the profit can be fixed. That’s why there are such tools as take-profit and stop-loss. But in order for them to play a positive role in trading and improve the overall result of trading, it is necessary to be able to correctly determine the levels at which they should be set. This is the subject of today’s article. We will parse the basic methods used by traders to set up take-profit and stop-loss.
Ways to set the stop loss
If a trader uses candlestick models in his trade, you can use a signal candlestick to place the SL. If a Buy position is opened, then we place a stop-loss just below the minimum of the candlestick, which became a signal. If a Sell position is opened, then we place stop-loss just above the maximum of the signal candlestick.
High efficiency is shown by trading by levels. In this case, these very levels are used to limit potential losses. If the price has broken away from a strong resistance level, you can open an SELL order, and place a stop-loss slightly above this level. Accordingly, if the price has broken away from a strong support level, you can open a BUY order and place a stop-loss slightly below this level.
In trend trade, it is recommended to use local extrema to set the SL. They can be conveniently identified with the help of fractals. If we tear off the BUY order, we place the stop-loss at the local min level. When opening a SELL order – local max.
And finally, some indicators will be suitable for determining the stop-loss level. Often a parabolic is used for this purpose. SL sets a bit lower than its buying point and a bit higher than its selling point. Further on, the stop-loss can be moved after the indicator points.
Methods of installing Take Profit
Take-profit is a convenient tool for profit taking that can be used successfully instead of closing orders by hand. There are also several ways to install TP.
Tested way to determine that the optimal ratio between the size of SL and TP is 1:3. That is, if we set a stop-loss at a distance of 40 pips from the trade opening price, the take-profit size will be equal to 120 pips.
When determining the size of take profit, you can also focus on the average daily volatility of the currency pair being traded. For example, if we know that the euro/dollar pair on average crosses the distance of about 80 points per day, then this value can be chosen when setting Take Profit.
Important levels are an effective reference point for placing TP. When buying, it is the nearest level that is resistance, when buying, it is the level that is support.
Take-profit can be set at round levels. For example, for euro/dollar pair it can be levels ending on 000 or 00 – 1.17000, 1.17100, 1.17200, etc.You can also schedule the closing of a position not by price but by time. Suppose a trade strategy is developed for trading in a European session. After it’s over, the deals are closed.
Take-profit and stop-loss, set at optimal levels, allow not only to improve trading results, but also to save the trader from excessive emotional stress, which is also important.11.06.2018