Tutorial: Understanding Stop-Loss and Take-Profit Levels and How to Calculate Them josepha (69)Member 🇳🇬 - Club75in Steem-Database • 4 days ago sl n tp.pngDesigned with PowerPoint
Tutorial: Understanding Stop-Loss and Take-Profit Levels and How to Calculate Them
josepha (69)Member 🇳🇬 - Club75in Steem-Database • 4 days ago
sl n tp.pngDesigned with PowerPoint
Hello Friend
You are highly welcome to my tutorial post. I am so excited to have you here today my dear friend. Please feel free to ask me any questions and also your suggestion is highly welcome by me.
IMG_20220918_174052.jpg screenshot gotten from Meta4trader
Stop-loss (TL) and take-profit (TP) levels are the two fundamental concepts in trading that almost every traders depend on to determine their trade exit position depending on the amount of risk which they are willing to take while trading digital assets. These words are used in both traditional trading, forex trading and crypto trading, which are very popular among traders whose makes uses of technical analysis before entering market.
Friend, when it comes to trading, there is what most trader called Timing the market which is a strategy where a trader or an investor try to predict the future market price of an asset in order to find an optimal price level to either buy or sell the assets. Stop loss and take profit levels come into play, when you are trying to figure out your exit point.
To this, Stop loss and take profit levels are simple price targets that you set for yourself in advance. I.e stop loss and take profit are the level that a trader set for him or herself ahead of time. The essence of stop loss and take profit levels is to keep trading at minimum risk levels which is very suitable for emotional traders. Now let's take a look at them one after another.
Stop loss level and take profit levels
Stop loss level is the predetermined price of an asset, that is set below the current price of the traded asset, at which the position gets closer in order to limit the loss of an investors position. Whereas, take profit level is the level that preset price at which investors or traders close a profitable position. Take profit is the level which you want to collect your profit.
Instead, of you using market orders in real-time for your trade, you can set your own levels which is the stop loss and take profit levels to trigger automatically even without you monitoring the markets every minute.
IMG_20220918_165143.jpg screenshot gotten from my Binance exchange
For example, Binance futures, has a stop order function that combines both stop loss and take profit orders. The system help traders to decide if an order is a stop loss order or take profit order base on the levels that price is trigger and that of last price or market price when the order is placed by the traders.
Why you should consider using stop loss and take profit levels
Stop loss and take profit levels both reflect the current dynamic of the market and if you really know how to identify their optimal values you can minimize your risk. Evaluatings your risk using stop loss and take profit levels can play a very important role in your trading which can grow your portfolio more better.
Stop loss and take profit can help you to prevent emotional fear in trading. We all know in trading trading once you have been cut up with emotional fear, you will be disturb which about what might happen next to your trade. But by applying the strategy of stop loss and take profit you will no longer be disturb over your trade because once your order is reached it will trigger automatically.
How to calculate risk to reward ratio
Risk to rewards ratio is the measure of risk that is taken in exchange for a potential rewards. Note that, it is always better for a trader to enter trades that have a lower risk reward ratio than entering a trade that have higher risk rewards ratio. By applying this simple strategy your your potential profits will be greater than your potential risks.
Stop loss and take profit levels are the two levels that are used to calculate a risk to reward ratio. In order to calculate risk to reward ratio you can make use of the given formula below:
Entry price - Stop-loss price ÷ Take-profit price - entry price = Risk to reward ratio.
How to calculate stop-loss and take-profit levels
There are so many methods that you can use to calculate stop loss and take profit levels. You can use the approach of support and resistance levels. Traders who use the levels of support and resistance often set their take profit level just above the support level and their stop loss right below the level of resistance.
IMG_20220918_174052.jpg screenshot gotten from Meta4trader
In our next class we will continued with how to identify support and resistance levels on a chart.
To be continued.......
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