In trading, the most important tools used to control risk and lock in profit are TP (Take Profit) and SL (Stop Loss). Here’s what it is:
Take Profit (TP)
Definition: It is a pre-set price level at which a trade automatically closes to secure profit.
Purpose: Helps lock in gains when the market reaches a favorable level.
Example: If you buy EUR/USD at 1.1000 and set a TP at 1.1100, it will close automatically when the price goes up to 1.1100 and you will obtain your profit.
Stop Loss (SL)
Definition: A pre-set price level where a trade automatically closes to limit losses.
Aim: Protects a trader from a huge loss, in case the market movement is not in his/her favor.
Example: You place a buy order on EUR/USD at 1.1000 with SL set at 1.0900. In this case, if the price drops to 1.0900, the trade will close automatically, thereby preventing a loss.
Key Points
Automation: The setting of TP and SL happens before you start trading; thus, they work even if you are not keeping tabs on the market.
Risk Management: They maintain disciplined trading by limiting emotional decision-making.
Customization: The levels for TP and SL will depend on your trading strategy, risk tolerance, and market conditions.
