Both Stop Loss and Take Profit orders are basically you as a trader telling your broker when to close your trades. A stop-loss is designed to let your broker know how much you are willing to risk with your trade. A take profit is pretty much the exact opposite. It tells your broker how much you are willing to make as a profit with one trade and close it once you’re happy with the amount. Both stop loss and take profit options are tools that can be used on the trading software you will be using with your brokerage. Almost every single one of them has it. But if it doesn’t you may check with your service provider since the tool is very important. Both stop loss and take profit orders may seem very easy at one glance. You simply take a look at how much you are willing to lose or gain and set them accordingly, right? Well, technically yes. But if you don’t research how to take profits in trading, it’s likely that you will miss out on the majority of gains. Both of these tools require studying and experience. Luckily, we’re about to do that in this guide.
How to use SL and TP orders
As already mentioned above, stop loss and take profit orders may seem very easy to learn, but they aren’t. They require months of learning about technical analysis. This is when a trader looks at charts of different assets, and through calculations with different formulas determines when a currency pair can reach its peak price, and when it could possibly decrease too much. Most traders usually go for stop-loss orders only in the beginning. This helps them experience the market much more even if they lose a bit for not placing take profit orders. It’s important to note that no matter how confident you are, a profitable position can go bad within seconds, and a small loss can turn into a large one in the blink of an eye as well. Stop loss and take profit are simply unavoidable tools to use when trading.
What is stop loss and how to use it
A stop loss order is when a trader indicates when they are ready to close their position even if they are not near their device.
That’s right, a stop loss order will remain active even if you are not touching your computer or smartphone. It’s possible to simply open a trade, and leave it there overnight. If the exchange rate changes a lot, the stop loss will be there to protect your account.
But what is a stop loss order? How does it work and how do you set it? Well, in order to answer these questions let’s first identify stop loss order types. There are 3 types to be exact:
Percentage Stop
Chart Stop
Volatility Stop