Stop Loss and Take Profit - the most important webinar
Good day, comrades forex traders.
Stop Loss and Take Profit. Alpha and Omega Forex Trading. The beginning and end of each transaction. There are only two factors, the work with which will allow you REALLY TAKE OFF in your trade. At the webinar, you will find only practical chips that you can apply in your strategy right now.
What will happen at the webinar
- What is more important: Stop Loss or Take Profit
- The whole truth about the law of meanness in trading
- Stop Loss Methods
- Take profit placement methods
- Practical Secrets Not Talked About
- Mental skills with restrictions on trade
- Answers to your questions
Recording a past webinar
Below you will find a short text version of the webinar.
Options for setting stop losses
Stop loss is considered a priori a more important element of trading than take profit. Putting SL is strictly necessary (at least with manual trading), TP is optional.
There are many ways to set stop losses. Most of them are provided for by the rules of specific trading systems, but there are universal standard options, which we will consider below.
At the last local extreme
The easiest way to set SL is to the minimum / maximum of the signal candle, or at the level of the last extremum.
In the first case, the stop loss is set a few points below the minimum of the signal bullish candle (in the case of purchases), or above the maximum of the bearish (in the case of sales).
In the second case, the stop loss is set a few points below the local minimum (in the case of purchases), or above the local maximum (in the case of sales). That is, in this case we focus not on the signal candle, but on the last extremum.The disadvantage of this model of exposure is that market makers, and indeed any experienced market participants, are well aware of this method, it is easy to read on the chart, which means it can be used against small traders. Market makers will move the price right up to the level at which, logically, the most stops will be set, and they will be knocked out, forcing traders to close at a loss, and then let the price go in the same direction.
Setting stop losses by levels is a more advanced option. It is good because at key levels there is a large accumulation of orders that are not so easy to beat out. Nevertheless, it is necessary to set the price a few points below the level when buying and higher when selling.
In addition, when buying, stop loss should be significantly lower than the last local minimum or above the last local maximum when selling. Thus, the trader protects his position from accidental knocking out, which is possible with the first method of setting SL.
According to the indicators Parabolic SAR, ATR
This method is quite simple, therefore it is used by many beginners, and is also a component of many trading systems using these indicators. Parabolic is most often used to set stop loss, because it most clearly indicates the place where you want to place a protective order - SL is set directly on the PSAR marker.
Putting SL by the Parabolic marker has an advantage - such a stop can be manually moved on each new candle, simulating a trailing stop, but acting more flexibly.
On the other hand, setting stop loss by indicators is just as easy to calculate as setting it at local extremes, so a trader can become a victim of manipulation by market makers and be knocked out of the market.
By fundamental factors
The exit from the transaction by fundamental indicators is often carried out manually than by the pre-set stop loss. For example, it may be closing a position after the end of the American session, when trading activity is on the decline. It is also logical to exit the market 15 minutes before the release of important news - after all, such events can move the price by tens (if not hundreds) of points in a few minutes and move the price in any direction.
However, in some cases, based on fundamental factors, an ordinary stop loss can also be set. For example, SL at a distance equal to the size of the average daily candle for a particular asset. For GBPUSD, the average daily candle is 80 points - which means that when trading on this pair, you can set a stop loss at this distance.
Technical Stop Loss
Technical stop loss is an exit on any indicators, except for obvious ones, like Parabolic SAR. This can be the intersection of moving averages or the entry of Stochastic into the overbought / oversold zone.
Such a stop is often performed manually, since the trader (or adviser) monitors the indicator in real time, and closes the deal when the instrument gives a signal.
Psychological aspects of stop loss
Often, traders perceive the closing of a stop loss transaction as a personal defeat. Even if SL was set correctly, the loss turned out to be relatively small and the stop protected from much larger losses (that is, fulfilled its direct purpose), the trader can still be upset, and when several transactions are closed in a row, even get into a slight depression and lose faith in his TS , and even in the market as a whole.
The chagrin of fixing losses, on the one hand, is understandable. On the other hand, emotions should not interfere with trade. A professional trader should perceive stop loss closure as a completely normal phenomenon, the same systemic action as opening a pending order or taking profit by take. However, the desired perception must be adjusted.
Opening deals with only a small stop loss
This measure is especially effective for beginners. This is a simple technique that will allow you to get used to leaving the market in footsteps and treat them calmly, as losses will be minimal and quite acceptable.
In this case, stop loss should not be artificially low. All parameters of the order must be adjusted strictly according to the TS, however, those transactions in which the stop loss will be above a psychologically acceptable level should be ignored.
For example, if a signal is received to open a transaction, but the distance from a potential point of opening a transaction to the level is about 40 points (and SL will have to be set even further) - for intraday trading these are too large numbers, and it is better to refrain from the transaction. At the same time, it is possible that after a while the price will roll back, and another signal will be generated in the same direction with a much lower stop loss. And so it happened on February 13 at USDCHF, where a deal with a stop loss of 17 points was opened - quite acceptable even for a beginner.
In order for frequent hitting of a small stop loss to pay off in the long run, it is necessary to calculate the deal so that the potential profit is at least 3 times higher than possible losses.
Stop Loss Mind
Some traders refuse to set a stop loss in the terminal, citing the fact that they have already set it “in mind” and personally control the deal. If the price goes in the wrong direction, they will independently close the position when they see fit.
Even if you omit the likelihood of technical failures and possible problems with the Internet that will not allow you to close the deal on time, all the same emotions can become a real problem in this case. If traders can easily remain impassive when trading on cent accounts, then when the loss of real money begins, sometimes it’s just a “hand does not rise” to fix the loss when the system requires it. As a result, the trader continues to wait and hope until a loss of 1-2% of the deposit turns into 10-12, or even 50%.
To prevent this, the stop loss "in the mind" should always be duplicated in the terminal.
Work with take profit
Take profit is necessary in order to fix the profit and not lose it with a probable trend reversal. According to the rules of money management, it is recommended to set a take 3 times larger than stop loss, however, the TP value should be adequate. If it is not possible to set a large take profit, it is better to refuse to open a transaction altogether.
There are several options for setting TP:
- Take more than a stop a certain number of times (3, 4, etc.). If the stop loss is 20 points, the take profit will be 60 (with a coefficient of 3). This method is the simplest, but its minus is that such a take is outside the market, there is no reason to believe that the price will reach exactly this mark. Accordingly - the probability of taking profits in principle is reduced;
- Take profit is equal to the average daily candle. This method makes sense when there are no other factors to which TP can be attached, and setting it without binding, by just multiplying stop loss is impractical;
- Oscillator output. A transaction is closed when Stochastic or RSI enters the overbought (for purchases) or oversold (for sales) zone. The disadvantage of this method is that the price can continue to go down even after the oscillator enters the oversold zone, and the trader who closes the sell position in this case will lose part of the profit. This method is best suited for intraday trading when deals are opened for a short time;
- Time exit. Transactions can be closed at the end of the day, week or month, guided by the fact that at the end of the day, trades are quiet, and in the morning new factors will influence the price, many events can happen over two days off, and at the end of the month many financial organizations close their positions to take stock, and this can cause increased volatility;
- According to round numbers. In this case, there is an orientation towards round price levels, for example, 1.2500, 1.2600, etc. Transactions are closed when the price approaches these levels, that is, when the level remains at about 20 points above or below;
- Setting take profit by levels. This approach, as with stop loss, is considered the most effective. In this case, round price levels are ignored, and the reference points are strong levels of resistance and support. This allows you to set take profit at a greater distance, for good reason.
Individual cases of take profit
In addition to the standard models of working with TP, there are separate situations in which you have to change tactics and close the deal contrary to the previously planned plan.
Sometimes the price, moving in the right direction, may not reach the take profit of 5-10 points and turn sharply in the opposite direction. In this case, most traders seem logical, at first glance, to leave the take in the same place and continue to wait until the price reaches the intended mark and the profit is fixed.
Despite the fact that the psychology of trading prescribes always to act according to the system and not to change its rules, in this case it is necessary to close a deal in the market without waiting for the price to reverse again. The fact is that after the price reversal, the disposition changes, a new signal appears, and the previous reasons that the price will move in the direction of an open transaction lose their relevance. This signal can be considered played, because 5-10 points - this is not so much, and the deal could well have closed by take, if the reversal candle had a slightly longer shadow.
For example, on March 1, a sale transaction was opened at USDCHF. Take profit is set above the support level formed by several local lows.
March 2, before reaching the take a few points, the price turned up. In this case, the right decision would be to close the deal immediately after detecting a reversal. Despite the fact that the price was adjusted down several times, it was on March 2 that a bullish trend started and if the deal had not been closed manually, it would have closed by SL.
Additional Trading Tips
In conclusion, we will consider some ways to close deals, in addition to exiting the stop loss and take profit once established at the time of opening the transaction.
This technique allows the trader to go into a more relaxed emotional state, as it guarantees at least the preservation of his own funds.
It is recommended to transfer stop loss to the level of opening a transaction when the price has passed the distance twice as much as stop loss. For example, if stop loss is set at a distance of 20 points, and take profit at a distance of 60 points, the transaction can be transferred to breakeven when the current profit is 40 points.
Trailing stop allows you to gradually reduce the size of potential losses, moving behind the price as the profit grows. There are several types of trailing:
- Standard, built into the MT4 terminal;
- Trailing advisors and robots (many of these can be found / downloaded here);
- Manual - the trader tightens the stop loss on his own, for example, based on indicators.
In order for automatic trailing to work, you must keep the terminal turned on.
Partial closing of a position
Sometimes, when the price approaches the take profit of a trader, doubts may appear that the trend has been exhausted, and he cannot get even more profit from this transaction. If there are prerequisites for the continuation of the trend, the deal can be partially closed, and a higher target can be set for the volume left.
For example, if a buy transaction is opened and take profit is set below the key support level, however, there are prerequisites that the level can be broken, 70% of the transaction volume is closed, and a higher TP is assigned for the remaining 30%. As a result, if the level is really broken (though not on the first try), the trader receives additional profit.
There are many ways to set stop loss and take profit, and even more there are nuances, special cases and situations in which you need to make a logical and informed decision, but contrary to the original plan. Understanding of such situations, as well as the ability to make the right decisions comes with experience. However, regardless of professionalism and fear of trading, a trader should remember that stop loss is always set, and take profit should always be greater than stop loss.