NoaFX Tutorial

4.7 Stop Loss and Take Profit Levels

The Stop Loss and Take Profit levels are pre-determined price parameters you input into your order position. They define the plan of your trading which helps you to execute your trades' exit strategy when price action has moved to your desired profitable/loss area.

What are Stop Loss and Take Profit Levels?

Next to your entry price level, these two price levels are the most important aspects to note when trading. In fact, it is highly recommended that when you trade and are getting ready to enter a position, you must already have at hand;

  • Your Entry Price Level
  • Your Stop Loss Level (Exit Plan when negative)
  • Your Take Profit Level (Exit Plan when profitable)

Given the situation that the market would reach any of the price levels set in your stop loss or take profit levels, the broker will automatically close the order and realize the profits/losses for that particular trade.

The Stop Loss Entry

The Stop Loss is an extremely important parameter and it protects your risk with any given trading position.

Given the situation that the market would move against the direction of your trading position open, the stop loss level defines the area at which you have planned to exit provided that the floating losses have reached your maximum threshold limit.

In other words, if your trading plan allows your position to have a maximum stop loss of 50 pips and your entry price for a long position is 1.5000, you will exit your position at 1.4950, absorbing a 50 pips loss.

Stop Loss Placement – Buy Example

If you would be looking to BUY a currency pair or opening a LONG position, your stop loss will be placed below the entry price of your contract.

Therefore, by placing a stop loss level at 50 pips, we place the stop loss order at 50 pips below the entry price of our long position.

Stop Loss Placement – Sell Example

If you would be looking to SELL a currency pair or opening a SHORT position, your stop loss will be placed above the entry price of your contract.

Therefore, by placing a stop loss level at 50 pips, we place the stop loss order at 50 pips above the entry price of our long position.

The Take Profit Entry

The Take Profit parameter is the next important parameter which controls how much profits you would like to target for and having reached that level, automatically exit the trade and realize all profits of that trade.

Given the situation that the market moves favourably in the direction of your trading position open, the take profit level defines the area at which you have planned to exit.

In other words, if your trading plan has a defined take profit goal of 100 pips, pips and your entry price for a long position is 1.5000, you will exit your position at 1.5100, realizing a 100 pips profit.

Take Profit Placement – Buy Example

If you would be looking to BUY a currency pair or opening a LONG position, your take profit will be placed above the entry price of your contract.

Therefore, by targeting a take profit level at 100 pips, we place the take profit order at 100 pips above the entry price of our long position.

Take Profit Placement – Sell Example

If you would be looking to SELL a currency pair or opening a SHORT position, your take profit will be placed below the entry price of your contract.

Therefore, by targeting a take profit level at 100 pips, we place the take profit order at 100 pips below the entry price of our short position.

Why are Stop Loss and Take Profit levels needed?

For every trading position open, it is absolutely necessary to have strict adherence to this rule: All Orders Must be accompanied by a stop loss level, and preferably, a take profit level.

Why is it important?

With every position taken or with trading systems as a whole, there needs to be a constant and consistent trading plan. This trading plan gives you the edge to constantly make more profits than losses in the market.

As components of this trading plan, the stop loss and take profit levels give you the mathematical conformity to ensure that your positions always stick to the same derived formula to give you that edge. In our later modules, we will discuss how to optimally calculate your stop loss and take profit levels, based on your strategy and your currency pair settings.

On the other hand, as a form of discipline, setting up these parameters ensures that the trading plan is constantly adhered to and not compromised at any given time. As most traders are profit driven and not risk management driven, they naturally tend to wait for profits.

Often, profitable positions become losses and when the losses are not managed properly, they can cause irreparable damage to your trading account.

To ensure that such mistakes do not happen, these parameters help to control such risks and keeps trouble at bay.

Setting Stop Loss and Take Profit Levels – When placing an order

Whenever a new order is being submitted, there are control fields to place the parameters within the order entry dialog box itself.

Note: It is highly recommended to have both controls already set when entering a position.

Once the controls have been specified, click on the "Sell" or "Buy" button to open the position. This will trigger an order to brokerage opening your contract position with the pre-determined Take Profit and Stop Loss levels locked in.

Note: If upon placing the order, you get a "Invalid S/L or T/P" error message, it means that your stop loss and take profit control levels are defined wrongly. Re-visit your trade setup and ensure the parameters are set right.

Setting Stop Loss and Take Profit Levels – After placing an order

Though it is highly recommended to specify these controls themselves while placing the order, it is possible to set these controls after having placed the order.

Once your order is open, simply right click on the open order which you would like to modify and click on "Modify or Delete Order" button.







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