Traders who have worked for more than ten years have one experience: in investing, risk management is more important than making money.
More than 80% of wealth comes from less than 20% of opportunities, provided that you can stay in the trading market long enough to wait for those 20% of opportunities.
Therefore, you must set a stop loss and a stop profit before each transaction. The stop loss can make up for your mistakes and ignorance, and the stop profit can stop your greed.
There are many Hui friends who are often "beaten", how to set the stop profit and stop loss, so today Hui Class will summarize the stop loss and stop profit methods.
stop loss
The premise of all stop loss is to determine the maximum loss amount you can bear in one transaction. If the total amount of funds for a transaction does not exceed 2% of the account funds according to industry recommendations, then if your account has 100 US dollars, you can only use 2 US dollars for a transaction, plus 100 times leverage, the standard account of 200 US dollars is only 20 point!
At this time, you must ensure that your stop loss range is within 20 points!
After determining the risk you can bear, use tools to find a more suitable stop loss point within this range.
①Support/resistance level method
Support and resistance levels are the most commonly used method to find stop loss, and the stop loss level is set below the support level or above the resistance level. As shown in the figure below, bearish engulfing pattern, a long black candlestick down, if you are going to go short, set the stop loss zone above the uppermost resistance line.
The above support and resistance levels are listed with Fibonacci retracement lines, but if you place an order in the shock zone (as shown in the right area of the figure above), you cannot use the support and resistance levels drawn by Fibonacci. Sometimes you need to use channels or high and low points.
②Channel/high and low point method
The upper and lower rails of ordinary channels or Bollinger Bands can be used as support and resistance, so it can also be used as a stop loss reference.
As shown in the figure below, the circled area is the shock zone, and the bearish engulfing pattern appeared again in the late stage of the shock, accompanied by a longer negative line. If you are short here and cannot find an effective resistance level, you can use the recent high point to set a stop loss at this time, and the area above the high point is a stop loss zone.
The stop loss position given by the above method is an area, but how many points to set specifically needs to be measured according to the market volatility of different trading varieties. At this time, the ATR indicator can be used.
At the same time, the Bollinger Bands channel can also be used to measure the size of market fluctuations. The greater the distance between the upper and lower Bollinger Bands, the greater the market volatility, and the corresponding stop loss position can be set more loosely.
③ ATR indicator to determine the stop loss point
The ATR indicator represents the average true amplitude, which can measure the size of market fluctuations. If the ATR value is large, it means that the price fluctuates greatly, and the stop loss should be farther away from the entry price to prevent being out of the market due to price shocks.
If the ATR value is small, the stop loss can be set to 1-2 times the ATR value, and if the ATR value is large, the stop loss can be set to 2-4 times the ATR value. It can be used as a reference, there may be errors in different trading varieties and trading styles, you can test and adjust!
take profit
To minimize the loss, stop loss is one aspect, and it is also very important to withdraw more funds at the best time. This involves the setting of the target take profit level. People who do not set a stop profit may not be satisfied with their greed when they are making profits, and can earn up to 20,000 US dollars, but when a big negative line comes down, they quickly close their positions, and finally only earn 10,000 US dollars. What's more, seeing that the trend has reversed and firmly believing that the market can go back again, it turned out to be a loss.
The main function of the target take profit level is to close the position and put the money in your pocket before the trend reverses. Therefore, the core of setting the target stop profit level is to find the trend reversal signal.
①Preliminary support/resistance level method
Support and resistance levels may be a market reversal signal and can be used as a reference for take profit levels.
As shown in the figure below, when shorting after the bearish engulfing pattern, the stop loss point is below the Fibonacci 50 dividing line, where should the profit stop point be set?
It can be seen that the Fibonacci 0 dividing line played a supporting role in multiple positions in the early stage. We use this position as an important support line and set a target take-profit level.
There is a principle of polarity conversion between support and resistance levels. The support level in the early stage may be the resistance level in the later period, and the resistance level in the early stage may also be the support level in the later period.
Therefore, when looking for a stop profit target, you should also be flexible and pay attention to resistance and support levels. As shown in the figure below, the Fibonacci 61.8 dividing line is the resistance line in the early stage, and it is likely to become the support level in the later stage.
②RSI indicator method
The RSI indicator can indicate overbought and oversold signals in the market, so it can predict market reversals. It can also help you find the best take profit position.
As shown in the chart below, RSI's overbought and oversold metrics can be changed from the default (20, 80) level to (30, 70) level, which is more sensitive to price.
If the RSI indicator is greater than 70, it means that the market has entered an overbought state, and there will be a top reversal; if the RSI is less than 30, it means that the market has entered an oversold state, and there will be a bottom reversal. Every reversal is the reference position of the take profit level.
In addition, many Huiyou may have seen the saying of using a risk-reward ratio of 1:2 to set a stop profit. As long as the entry point is determined, the stop loss level is determined, and the take profit level is also determined. It can be used as a reference, but a 1:2 risk-reward ratio may not be suitable for everyone!
The method of stop loss and profit will be introduced here first. There may be some methods that have not been covered. You are also welcome to show your exclusive stop loss tips in the message area. Finally, I would like to remind everyone that many people like to move the stop profit and stop loss, and it is not recommended to move unless your trading skills are very skilled!
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