What are Stop-Loss and Teek-Profit
Newcomers often neglect the recommendation in each deal to necessarily expose Stop-Loss. The realization that this is a big mistake comes later, after several serious losses.
Today we will consider what Stop-Loss is and how to use it, as well as the main rules of Teik-Profit exposure, because it is also necessary to record the profit.
Prior to the advent of computer technology, stock weekly trading system required the trader to constantly control the deal and be able to close the deal quickly if something went wrong. When computers became desktop instead of giving hands special signs to the broker, and powerful lungs to get to him, it took the ability to correctly open stop loss and teak profit. Let's begin with definitions.
Stop loss - order the broker to close the current position when the specified loss value reaches points. In other words, if the market has not gone in our direction, you can be sure that losses will not lead to a complete loss of the deposit.
Teek profit - reverse deferred order, at the operation of which the position will be closed at the current level of profit. Automatically record income is especially important for news and scalping strategies, where the desired momentum can last a few minutes or even seconds. It is impossible to close the warrant manually in such a short period.
Stop loss and teak profit along with the volume of the lot are the main elements of the risk management system or mani management. Automatic fixing allows you to fully focus on planning a future deal, work simultaneously on several trading assets, and use advisers.
As separate weekly trading system instruments do not exist. You can only issue them when you open a BUY/SELL warrant for immediate or deferred execution.
Issuing Orders at the Terminal
Let 's take MetaTrader as an example. We click "New Warrant" and enter the calculation parameters.
Ways to Set Up a Teak Profit
The easiest option for beginners is trending, where the target will be equal to the width of the channel. We open after the third run from the support line, we automatically close on the resistance line. It is recommended even on a strong trend line to issue warrants to wait for 2-3 touches when the first corrections have already passed.
Calculation of profit by graphic figures.
Here you need to define the upper and lower boundaries of the new Price Action pattern as precisely as possible. The indicator of the position opening will be a true sample of the support level - we set TP and stop loss by the value of the figure of technical analysis.
Teek is a pro on Fibonacci levels.
Trade on Fibonacci forex trading strategy usually goes mainly intraday transactions and preferably on the time frame of the H1. We work only in the direction of the current trend. In such a situation, the most promising will be fractional positions by 23.6% and 38.2%. You can set longer-term goals at 61.8% and beyond.
We divide the teak profit into several parts on different price levels.
There may be a situation where the best option is to close only part of the volume when the market reaches a certain estimated level in the expectation that the trend will continue. You can close the desired part manually or split the original volume into multiple transactions.
Recommendations for installing a teak profit
There are no rigid methods here, the main thing is to observe the basic principle by which stop loss and teak profit are calculated. However, there are a couple of points that do not concern mathematics important when there is no constant control of the trading terminal:
Strong levels of support/resistance and key points of graphic patterns give maximum profit, but it is better to close slightly lower. We do not forget that they are seen by other traders and the main market makers with brokers. And if the price does not reach the calculation point of a few points with a subsequent deep correction, most of the minor players will close at zero at best. And at worst it will be necessary to go to the section on installation of stop loss.
Clarify the broker 's rules on automatic closure of the teak profit. It may be that not just a touch is required, but confirmation of punching by closing the next candle above/below a given level. Also, the magnitude of the spread should be taken into account, if it is large, then the touches will not be guaranteed enough.
Stop loss and teak profit is best placed at levels where alignment (confluency) is observed. For example, one near each other contains Fibonacci, Pivot Points, and Ishimoku indicator lines. The more they are, the more likely the market will be there, even if at first glance such a profit is hardly possible.
To make stop loss and teak profile dynamically variable depending on the development of the current market situation will help trailer-stop included in the basic set of all popular weekly trading system platforms. If the deal is moving in a positive direction, it starts to carry TP/SL by a given number of points. Thus, we get a double benefit: by taking out increasing profits in automatic mode, at the same time we reduce potential losses up to the transition to a state of no loss, when the closing of the foot is guaranteed to leave the trader with profit.
Such a reception is popular among automatic advisers, as at first glance it seems to be the best way to guarantee, at least, an exit to zero. Indeed, it is often possible to see situations where the price after a rapid movement makes a sharp "drop" by extruding small and medium-sized players. To correctly expose the trailer stop are hampered by several problems:
The floating spread prevents you from picking the optimal dynamic stop loss for the whole day or trading session. And no matter the built-in trailer or user - in such a situation unpredictable losses are guaranteed. The built-in tester MetaTrader works only with a fixed spread, take this into account when analyzing the results.
Volatility is constantly changing, and the parameters of trailer, which have shown themselves well in a calm market, can behave unpredictable in an active trading period. However, when volatility grows, more and the average level of possible profit, you can try to increase the fixed teak-profit by 5-10 points!
Restrictions of the broker. Each change in the parameters of an open transaction is the sending of a new sales order to the server, where two operations actually take place: closing the current transaction and opening a new item with new data. If such transactions from the same account are too many or the size of the trailer-foot is small, which leads to constant adjustments, the broker can apply sanctions: from a hidden increase in slip for the new Stop Loss to a complete shutdown of the flow of quotations with forced closure.
Stop Loss Installation Options
The study of how to properly expose protective warrants traders often pay insufficient attention. Despite the fact that their importance and obligation are constantly mentioned in textbooks on mani management, it is stop loss that most often falls out of the general system of market analysis. In trade strategies, the limitation of losses is also often indicated at the very end and in small font. However, as practice has shown, their correct location and control can be obtained at the end of the month positive result even when profitable deals will be less than 50% of the total number.
There are three main options for limiting losses:
1. At all not to set a starting stop loss and teak profit at the same time is controlled by a trailer stop.
Categorically not recommended to beginners - even scalping strategies have meaning limiting losses, and for intraday transactions this is a mandatory condition. Professional traders can use similar tactics on long-term deals at large deposits and small lots, but this is also quite rare.
2. Value of stop loss is determined at the moment of position opening and is constant until closing.
The advantage is that what loss will be known in advance, which facilitates compliance with mani management by beginners. If it works, you can quietly understand the reasons for the error to change the trade plan, rather than ship-opening new positions, trying to win back. When the trend resumes you can always enter again.
However, there is a nuance that needs to be taken into account when calculating stop loss and teak profit. You should never save even when the deal is medium-term, and a clear strong trend is visible. "Chicken" feet of 15-20 points work almost always and on some currency pairs may be almost on the boundaries of the spread. Of course, for each entry point, the market situation is unique, but once again we will repeat - we should not save.
The main disadvantage is that if you put a small corridor on the most volatile pairs, such as USD/JPY or GBP/USD, you can get a gradual accumulation of small disadvantages, especially this is noticeable on automatic advisers who are not designed for such "nervous" assets.
Another problem even with sufficient size in insufficient control by the trader. When open several deals always have to miss the moment of sharp reversal or opportunity to transfer to break-even and generally remove losses.
3. Stop Loss is added to the open position only after the first price correction or the trailer stop starts.
This method requires good professional training and knowledge of the features of the working instrument. Of course, initial indicative levels are present, but they are far away from the opening price. At a minimum, they are behind the latest local price highs/lows or strong levels of support/resistance. Then after opening, the trader begins moving the stop loss and teak profit as the deal progresses in a positive direction.
The advantage: the possibility to move the position in time to a break-even position, which in theory should lead to a calmer trade. Carry stop loss, can be fixed for example by 20 points, or by new price peaks or levels such as Fibonacci, Pivot or Murray levels. However, in this case, make sure on other indicators that there is no possible nearest rollback capable of quickly "hooking" it and further trend goes without us.
The disadvantage: the main thing we have already pointed out is the risk of a deep rollback, especially when strong fundamental news is coming out. Second World War main thing
The main shortcoming is that if to expose a small corridor on the most volatile couples, such as USD/JPY or GBP/USD it is possible to receive gradual accumulation of small minuses, especially it is noticeable on automatic advisers who are not intended for such "nervous" assets.
One more problem even at the sufficient size in insufficient control from the trader. When openly several transactions always are to miss the moment of a sharp turn or opportunity to transfer to a bezubytok and in general to remove losses.
3. Stop Loss is added to an open position only after the first correction of the price or the beginning of work of treyling-stop.
This way demands good vocational training and knowledge of features of the working tool. Of course, initial approximate levels are present, but they are from the opening price at a great distance. At least, they behind the last local price maxima / minima or strong levels of support/resistance. Then after opening the trader begins to move stop лосс and тейк a profit in process of development of the transaction to a positive side.
Advantage: an opportunity in time to turn a position to position of profitability that in the theory has to lead to quieter trade. To transfer stop лосс, it is possible it is fixed, for example, on 20 points, or on new price peaks or levels such as Fibonacci, Pivot or Murray's levels. However, in this case be convinced on other indicators about lack of possible next kickback capable to quickly "hook" on it and the further trend goes already without us.
Shortcoming: main we already specified, it is risk of deep kickback, especially at an exit of strong fundamental news. The main thing to go to a bezubytok in time, then at least a deposit will remain whole.
Do not try to catch all trend entirely. There are no such techniques by which it is possible to predict the beginning and horses of a trend to within point. It is necessary to expose profits/losses no more than for 55-60% of a maximum, then closing probability in profit increases.
Stop Loss Installation Guidelines
The range of 30-40 points around the fusion point of several indicators on the professional slang of traders is called a "penalty platform" and it is extremely not recommended to have a stop loss there, as this zone is fraught with sharp price pulses.
A short-term trial does not give a 100% guarantee that the price will go in its direction. You need to wait for confirmation from other technical tools and at least a second level retest, which means there is interest in large "foot hunters." Fighting with such large players makes no sense, it is better to try to move with them - place stop loss and teak profit in areas of interest to them. And when they move the price in large volumes, you 'll stay in the pro, too.
If the price moves towards quotations in which the last two digits are 00 or 50 (round levels) on which there is often a gathering of footsteps - open the teak profit in parts or fill the position as the market moves to the profitable side.
Large players see places where there are clusters of deferred warrants and in addition actively use inter-market analysis for comprehensive market understanding. This allows them to plan speculative actions and long-term strategies. Therefore, include in your forex trading strategy up-to-date exchange information on currency and commodity futures, especially the values of "open interest" (volume of transactions in money). Control the closing dates of option and futures contracts - on the closing day there will be an active reset of open interest and myforex currency market may be late, but supports the stock trend.
Each trading forex trading strategy contains its own rules on how to calculate stop loss and teak profit. For scalping they are tough enough and it is not recommended to retreat from them. And for more intraday, medium- and long-term options, you can experiment for a specific asset and volatility, but only with preliminary testing on historical data.