In trading, the TP (Take Profit) and SL (Stop Loss) are very important tools for risk management and locking profits. Here’s what they are:
Take Profit (TP)
Definition: It is a predetermined price level that a trade will close automatically to secure a profit.
Purpose: It helps traders lock in gains when the market reaches a favorable level.
Example: If you purchase EUR/USD at 1.1000 with a TP set at 1.1100 the trade will close automatically. That is when the price reaches 1.1100; your profit is sealed.
Stop Loss (SL)
Definition: A determined price level that a specific trade will automatically close to make losses limited.
Purpose: Stops the trader from suffering increased losses if the market does the opposite of what it wanted.
For example, if you buy EUR/USD at 1.1000 and set an SL at 1.0900, the trade will automatically close if the price reaches 1.0900 and thus limit your loss.
Key Points
Automation: Both TP and SL are set in advance, thus they will work even when you’re not actively monitoring the market.
Risk Management: They keep disciplined trading by limiting emotional decision-making.
Customization: The TP and SL levels will vary with your trading strategy, risk appetite, and market conditions.
Do you want to learn how to calculate or set effective TP and SL levels?