Welcome again, dear trader!
Today, we're going to talk about stop-loss and take-profit orders, two essential elements of risk management in your trading strategy.
Let's define each:
A stop-loss order is an order that you can use to close a trade if the price of the asset reaches a certain level. This gives you the ability to limit your losses on a trade.
A take-profit order is also a type of order that you can place to close a trade if the price of the asset reaches a specific level, just like a stop-loss. The difference is that this one works to secure profits on a trade.
A take-profit order makes it easy to lock in profits when you correctly predict a market move.
Stop-loss orders help you mitigate losses when the market doesn't behave in your favor.
Something like a free insurance policy for your trading account.
They also offer you something very valuable: flexibility. You can take care of other activities while you have an open position because the orders are executed automatically according to your previous configuration.
What you need to keep in mind:
First, don't use them without properly setting them up in your investment plan. We don't recommend deliberate improvisation.
Take the time to understand how the market is moving where you will apply the orders and how much risk you are willing to tolerate according to your convenience. This will determine how close or how far you will place the orders from the entry price.
The level of your take-profit, for example, if you are using a short-term strategy, it should generally be close to the entry price, while you understand the system in which you are located and evaluate how the asset behaves until you feel ready to make a little more risky decisions (if the situation warrants it)
While we consider it important that you start taking advantage of these settings as soon as possible, we cannot help but remind you that they will not provide you with the profits you are looking for if you do not have the right information.
Here is where elements such as backtesting and being up-to-date on market news become crucial to correctly define where we want to aim the take-profit and stop-loss orders.
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We look forward to hearing your impressions and your progress in our Telegram community where traders from all over the world will be happy to welcome you.
The best of luck in your operations! See you soon, trader!
For this article, prompts have been used to request information
interpreted and provided by AI (Google Bard). Written and edited
by Kevin David Terán and verified by Pedro Arizaleta and Erwin Sánchez