summary
Many traders rely on the two key points of take profit and stop loss to determine their trading exit strategy. The exact point depends on how much risk they are willing to take. Both thresholds are used in both traditional and cryptocurrency markets, and are especially popular with traders who prefer technical analysis methods.
Lead
Opportunistic access refers to the fact that investors and traders determine the optimal price level for buying and selling an asset by predicting the future market price. In this strategy, timing is crucial. This is where the Take Profit and Stop Loss levels come in handy.
Take profit and stop loss are pre-set target levels for traders. Self-disciplined traders often use these predetermined prices as part of their exit strategy. Predetermined prices are designed to avoid emotional trading as much as possible and are essential for risk management.
Stop loss and take profit points
A stop loss (SL) is a predetermined price that is lower than the current price of an asset. Once the stop loss is reached, the system closes the stop loss. The Take Profit Point (TP) is also the predetermined price. Once this point is reached, the system closes the position and takes profit.
Traders don’t need to use real-time spot orders and follow the market around the clock. After the preset price, an automatic selling mechanism is triggered once the price is reached. The Binance contract includes the aboveTake profit and stop loss function。 The system will be based on the trigger price and the last price or when the order was placedMark Priceto decide whether to take profit or stop loss.
Why should I set a take-profit and stop-loss level?
Conduct risk management
Take profit and stop loss levels reflect the current dynamics of the market. Determining the optimal value is essentially a way to determine your acceptable level of risk and to take advantage of favorable trading opportunities. Using take-profit and stop-loss levels to assess risk can play a key role in maintaining and expanding your portfolio. Prioritizing less risky transactions protects your holdings and prevents your investments from losing your money. Because of this, many traders areRisk management strategiesTake Profit and Stop Loss are used.
Prevent emotional trading
At any given time, a person’s emotional state can heavily influence decision-making, which is why some traders rely on preset strategies to avoid trading under the dictates of stress, fear, greed, or other powerful emotions. Learning to identify when to close a position can help avoid itImpulse tradingto make you more strategic when trading.
Calculate the risk-reward ratio
Stop-loss and take-profit points can be used to calculate the risk-reward ratio of a trade.
Risk-reward ratioA measure of the amount of risk taken in exchange for a potential return. In general, it is better to enter a trade with a lower risk-reward ratio, as it means that the potential profit exceeds the potential risk.
The following formula can be used to calculate the risk-reward ratio:
Risk-reward ratio = (entry price - stop loss price) / (take profit price - entry price)
How to calculate Stop Loss and Take Profit points Traders can utilize a variety of methods to determine the best stop-loss-take-profit point. Calculations can be made using a single method or a combination of methods, but all in the same way to make a more informed decision about when to close a position using the available data.
Support and resistance levels
In both traditional and cryptocurrency markets, support and resistance levels are the core concepts that every technical trader is familiar with.
Support and resistance levels are areas on the price chart where there is a high probability of volume increase. The trading volume here includes both buying and selling. At the support level, a pause in the price decline is expected due to increased buying. And at the resistance level, the price rally is expected to pause due to the increase in selling volume.
Traders who use this method usually set their take profit points above the support level and set the stop loss point below the resistance level.
Moving average
This kindTechnical indicatorsIt is possible to smooth out the price behavior data by smoothing out the market noise, thus showing a trend of change.
Depending on their preference, traders can draw short-term or long-term moving averages. Traders who closely follow the moving averages will keep an eye on the intersection points of the two moving averages in the chart and grasp the opportunity to sell or buy the crossover signals.
Usually, traders using the moving average line will set their stop loss point below the long-term moving average line.
Percentage method
Some traders use fixed percentages to determine take-profit and take-loss points, rather than using a predetermined price calculated by technical indicators. For example, they can choose to flatten the warehouse when the asset price is 5% higher or lower than the entry price. This method is simple and suitable for traders who are not very familiar with technical indicators.
Other metrics
We’ve mentioned a few common technical analysis tools for determining take-profit and stop-loss points, but traders also use a number of other indicators, including the Relative Strength Index (RSI), Bollinger Bands (BB), and Indexed Smoothed Moving Average (MACD). The relative strength index is a dynamic indicator that indicates whether an asset is overbought or oversold; Bollinger Bands are used for measurementMarket volatilityï¼› And the index smoothness moves the average line, and the index moves the average line to use the index moving the average line as a data point.
summarize
Many traders and investors use one or more of the above methods to calculate stop loss points and take profit points. These levels are technical signals to exit a trade, prompting traders to let go of losing their head or realize potential gains. Please note that each trader has its own take-profit and stop-loss points. These points do not constitute a guarantee of profitability, but can only be used as a guide to make decisions, so that traders can have a more holistic view and a more targeted decision-making process. In this regard, by determining the take-loss and take-profit points or using Evaluating risk through other risk management strategies is a good trading habit.