When it comes to the matter of your desire pertaining to knowing the differences in regard to orders that are stop loss and take profit. Therefore, this article will provide insights into the difference between stop loss and take profit in an effort to help to provide more clarity for you regarding this issue.
A Stop Loss Order is a trading order which closes a losing trade automatically 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 in the purpose for which we use these types of orders because stop-loss order closes losing trade and take profit closes profitable trade. If the current price is $100 and we have BUY trade than stop-loss order can be for an 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 important price level from the past (Pivot point level, daily low or high, weekly low or high, etc. )
Take profit is a price above $1400, some important 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 important price level from the past (Pivot point level, daily low or high, weekly low or high, etc. )
Take profit is a price 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 is lost by the trader. Certainly, it is comprehended that this kind of order can prove to be highly beneficial for you as a trader as one of the primary tools in relation to the task of risk management. This is proven particularly to be the case if you are not in the routine of conducting a follow up of your account on a regular basis.
When an order that 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 is set by you. This type of order then is also regarded as being one of the primarily highly beneficial tools pertaining to risk management in such cases that you are not in the practice of checking your account on a regular basis.
In more detail, an order that is regarded as taking profit is considered to be a kind of order with limitations that are set in place, as it sets forth the specification regarding the designated price for the closing of a position that is open in order to achieve the result of a profit. The reality is that the majority of traders engage in the usage of order that is take profit in alliance with their usage of order that is noted as being stop loss in order to conduct the management of their positions that are regarded as being open.
If there is an increase in the security in regard to the point for the order that takes profit, the order for the take profit undergoes execution and there is the closing of the position in order to achieve gain. In such cases that there is a drop in the security in relation to the point pertaining to 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 aid in granting the determination of the ratio of risk to reward for the trade.
When it comes to the benefit pertaining to the usage of an order that takes profit, it is noted that the trader does not have to give consideration to any executions that are done manually and there is no need to engage in bouts of second-guessing. Indeed, orders that are noted as taking profit are conducted for the most optimal pricing point without any regard given to the behavior of the particular security. 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 period of the breaking out, which could then result in costs that are high for this particular opportunity.
It is best for orders that take profit to be implemented by traders that conduct trades that are noted as being short term when they want to be extra careful when it comes to the issue of managing their level of risk. This is based on the premise that the traders are able to do away with a trade at the moment that there is the reaching of 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 being long term tend to not hold high regard for these types of orders due to the acknowledgment that they tend to provide some cutbacks on the profits that they achieve.
There is no denying the fact that there are many things to take into consideration when wondering what stock to purchase. It can seem rather simple to overlook the things that are small. One of those small elements is regarded as being the order that is classified as a stop loss.
Though it is regarded as being a small thing that can often be overlooked, it is also highly powerful in engendering a beneficial difference for traders. This is due to the fact that most people who make investments can gain some real advantage in some way when they apply the usage of this tool.
Yes, it is great news that most of those who make investments are able to derive good benefits when they engage in the implementation of an order that is categorized as a stop loss. See, the stop loss has been formulated for the sake of granting the provision of limitations for the loss that is experienced by investors concerning the position of security that forges ahead with a move that is considered to be unfavorable.
A valuable benefit of the order that is categorized as stop loss is the reality that there is no need for you to engage in the monitoring of your account on a daily basis. 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.
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