When it comes to your desire to know the differences regarding stop loss and profit, this article will provide insights into the difference between stop loss and take profit to help provide more clarity for you regarding this issue.
A Stop Loss Order is a trading order that automatically closes a losing trade at a certain price level. A Take Profit order allows you to close a profitable trade automatically at a certain price level. So, the difference between stop loss and take profit order is how we use these types of orders because stop-loss order closes losing trade and taking profit closes profitable trade. If the current price is $100 and we have BUY trade, then the stop-loss order can be, for example, $99 (price level below current price), and the Take profit order can be forex an example, $101 (price level above current price).
Graphic example:
Example:
BUY order for GOLD. The current price of gold is $1400.
Stop-loss is a price below $1400, some vital price levels from the past (Pivot point level, daily low or high, weekly low or high, etc. )
Take profit above $1400, some critical price level from the past (Pivot point level, daily low or high, weekly low or high, etc. )
SELL order for GOLD. The current price of gold is $1400.
Stop-loss is a price above $1400, some vital price levels from the past (Pivot point level, daily low or high, weekly low or high, etc. )
Take profit below $1400, some important price level from the past (Pivot point level, daily low or high, weekly low or high, etc. )
Difference Between Stop Loss and Take Profit – Discussion
With this perspective in mind, it is, therefore, realized that an order that is regarded as being a stop loss is an order that has as its objective the automatic closing of a trade that is not profitable due to the experience of a loss at a price point that is designated for the sake of being able to ensure a limitation to the amount that the trader loses. Certainly, it is comprehended that this kind of order can prove beneficial for you as a trader as one of the primary tools for risk management. This is proven mainly to be the case if you are not routinely conducting your account’s follow-up.
When an order is classified as taking profit, this means that this type of order permits you to engage in conducting the automatic closing of a trade that is considered to be profitable for a price point that you set. This type of order is also regarded as being one of the primarily highly beneficial tools about risk management in such cases that you are not in the practice of checking your account regularly. In the article, what is a stop-limit order, we gave more details.
In more detail, an order that is regarded as taking profit is considered a kind of order with limitations set in place. It sets forth the specification regarding the designated price to close a position that is open to achieve the result of a profit. The reality is that most traders engage in the usage of order that is take profit in alliance with their use of order that is noted as being stop loss to conduct the management of their positions that are regarded as being open.
If there is an increase in the security regarding the point for the order that takes profit, the order for the take profit undergoes execution, and there is the closing of the position to achieve gain. In such cases, there is a drop in the security about the point about stop-loss. The s/l order undergoes execution, and there is the closing of the position that experiences a loss. The variation concerning the market value and these two particular points helps determine the ratio of risk to reward for the trade.
When it comes to the benefit of using an order that takes profit, it is noted that the trader does not have to consider any executions that are done manually, and there is no need to engage in bouts of second-guessing. Indeed, orders noted as taking profit are conducted for the most optimal pricing point without any particular security behavior. There could be a higher level of breaking out for the stock. However, the order that takes profit may be conducted at the commencement of the breaking out period, resulting in high costs for this special opportunity.
It is best for traders who take profit to be implemented by traders who conduct trades noted as short-term when they want to be extra careful when managing their level of risk. This is based on the premise that the traders can do away with a trade when reaching the profit target that was planned, as this will result in the prevention of risk concerning a potential decline in the market sometime in the future. Traders who usually engage in applying a strategy that is regarded as long-term tend to not hold high regard for these types of orders due to acknowledging that they tend to provide some cutbacks on the profits they achieve.
There is no denying that there are many things to consider when wondering what stock to purchase. It can seem relatively simple to overlook the small stuff. One of those little elements is regarded as being the order that is classified as a stop loss.
Though it is regarded as a small thing that can often be overlooked, it is also compelling in engendering a beneficial difference for traders. This is because most people who make investments can gain some real advantage when applying this tool.
Yes, it is great news that most of those who make investments can derive good benefits when they engage in implementing an order categorized as a stop loss. See, the stop loss has been formulated to grant the provision of limitations for the loss experienced by investors concerning the position of security that forges ahead with a move that is considered unfavorable.
A valuable benefit of the order categorized as stop loss is the reality that there is no need for you to monitor your account daily. On the other hand, it is realized that there is a disadvantage to this type of order as well, which is acknowledged as being a fluctuation in the price for a short term could in actuality result in the activation of the stop that would thus produce a sale that is not necessary.
