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In trading, the Take Profit (TP) and Stop Loss (SL) are risk management tools. These are used to lock in profits and thus close a trade. Here’s a breakdown of what they mean:
Take Profit (TP)
Definition: A pre-set price level where a trade will automatically close to secure a profit.
Purpose: To help traders lock in gains when the market reaches a favorable level.
Example: If you buy EUR/USD at 1.1000, then set a TP at 1.1100; upon reaching 1.1100, the price hits it and closes, keeping your profit.
Stop Loss (SL)
Definition: Pre-setting of price levels where trade shall automatically close to limit losses
Stop Loss purpose: Keeps excess loss that may occur on reaching against their position in the market.
Example: If you buy EUR/USD at 1.1000 and set SL at 1.0900, the trade will automatically be closed when the price will hit 1.0900. So, loss is limited.
Key Points
Automation: TP and SL will work even when you are not monitoring the market actively since they were set in advance.
Risk Management: They maintain disciplined trading by reducing emotional decision-making.
Customization: The levels for TP and SL depend on your trading strategy, risk tolerance, and market conditions.
Do you want to know how to calculate or set effective TP and SL levels?
