Stop loss and take profit, simple installation using specific examples
You can talk about the need to set stop loss and take profit for hours, but inexperienced traders trade without using these stop orders at their own peril and risk.
In addition, there are several other rather risky options for Forex trading strategies that simply do not involve these orders.
The main reason for refusing to use stop loss, as a rule, is a purely psychological unwillingness to come to terms with the possibility of losses; the trader ends up setting their limit level in advance, and as a result, the deposit is drained .
For many traders, the problem is finding points to set stops, but this problem can be easily solved with the help of auxiliary scripts.
Stops should always be placed, with the exception of just a few cases, which will be given below.
Strategies that do not always allow you to set stop loss and take profit
Scalping strategy - when scalping or pipsing, all decisions are made instantly, and the transactions themselves sometimes last only a few seconds, it is clear that placing stop orders in such a situation is simply technically impossible.
Locking positions - in this case, an option to reduce risk is a pending order placed in the opposite direction.
Quite an interesting tactic, but at the same time quite difficult. In other cases, setting stop loss and take profit orders is simply mandatory; first, let’s look at the principles by which stop loss is set.
Features of setting stop loss
There are two main principles on which the entire system of working with this order is based, these are the amount of losses in relation to the amount of the deposit and the place of installation.
These two indicators are maximally interconnected; if you use this relationship correctly, this will lead to the best financial result.
In order to determine the stop loss size, you need to perform just a few simple calculations.
1. We determine the place where our order to close the position will be placed; these places are the past price lows when opening long positions or the nearest highs when opening short positions.
The figure shows a simple example, when the reference point is local minimums; such an order will be entered only in the event of a significant drop in the exchange rate.
Support and resistance lines or other significant price levels also serve as reference points.
2. The amount of losses - each trader determines it independently, ideally it is no more than 2-5 percent from one transaction.
That is, if you have a deposit of $5,000 and set your losses at 5%, then the loss from one transaction can be no more than $250. 3. Determine the Forex lot - here we will have to take into account the two previous indicators, for example, first we found out that the stop loss value should be about 50 points, and the amount of losses should not be more than 5% or $250.
This means that one point equals 250/50=5, that is, in our situation, with a deposit of $5,000, it is recommended to open positions of no more than 0.5 lots.
This is the optimal calculation option, but as a rule, an indicator such as greed comes into play and usually a trader with a deposit of $1000 already trades with a volume of at least 1 lot, which risk management can already be discussed here.
Take profit as a way to leave on time
There are several opinions on how to correctly set the take profit size, some believe that it should be at least twice as large as the stop loss, others are based on the daily market volatility.
The classic solution to this problem is to take into account possible turning points and price fluctuations (the same minimums and maximums).
But besides this, you should take into account such indicators as the time of release of important news, support and resistance levels, global lows and highs. That is, places where there is a high probability of a price reversal.
Stop loss and take profit are difficult to set only in the first few transactions; later you will develop your own system, which will significantly reduce the process time.