In trading, TP and SL are essential risk management tools for locking profit. Here is a break of what each means.
Take Profit (TP)
Definition: The pre-set price level where a trade will close automatically to lock in a profit.
Purpose: Helps a trader lock gains when the market has reached a favorable level.
Example: If you have sold EUR/USD at 1.1000 and you set the TP at 1.1100, the trade will be closed automatically once the price reaches 1.1100, so your profit is guaranteed.
Stop Loss (SL)
Definition: It is a pre-set price level which will close the trade automatically to limit losses.
It aims to protect traders from over losses if the market is moving against their position.
Example: If you buy EUR/USD at 1.1000 and put an SL at 1.0900, this trade will automatically close at 1.0900, which limits your losses.
Key Points
Automation: Both TP and SL are set in advance and therefore work even if you do not monitor the market.
Risk Management: They help maintain disciplined trading by limiting emotional decision-making.
Customization: The levels for TP and SL depend on your trading strategy, risk tolerance, and market conditions.
