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What Is Stop Loss and Take Profit?


Stop-Loss is a pending order used by traders to minimize risks. When analyzing the market, traders may misinterpret the asset price movement and incur losses. To mitigate the amount of potential loss, a trader can set certain risk limits based upon the market situation. This saves you having to monitor charts for extended periods of time and can remove the emotional element when making key trading decisions. A Stop-Loss order also allows you to leave your screen to go and watch a movie with the knowledge your risk amount is capped.

Here is an example of how to place a Stop-Loss order:

Now you don’t have to worry about the asset’s price changes nor will you have to spend hours monitoring your charts. Your risks have been calculated and taken care of. For more successful trades, the Stop-Loss order is often used together with the Take Profit order, available in the next lesson. 

Take Profit is a pending order that automatically locks-in a trader’s profit

Let’s imagine you want to leave a trade open a for a few hours and cannot be constantly monitoring the price movement. In this case, you simply place a Take Profit order and rest assured whilst you head off to watch a movie.
Let’s imagine that whilst you are watching the movie the asset’s price moves in a favorable manner. A Take Profit order placed in advance will lock-in your gain by automatically closing your position, once the asset reaches a favorable rate, so you make a profit whilst you watch your movie.

Here is an example of how to place a Take Profit order:

Now you don’t have to worry about the asset’s price changes nor will you have to  spend hours monitoring your charts. When your target profit level has been reached, your trade will close automatically, and your earnings will be immediately deposited to your trading account. Enjoy the popcorn and watch that movie.

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