Take-profit (t/p) and stop-loss (s/l) orders are widely used as trading risk management techniques. The point at which you are willing to sell a stock and take the profit on your trade position is called a take-profit point.
For example, let us say that there has been a large move upward, and the price is nearing a key [resistance level]. You may want to sell before the price reaches a period of consolidation and set your take-profit appropriately.
On the other hand, a [stop-loss] is a point at which you are willing to sell a trade asset at a loss when price action does not move in your favor. These points help you limit further losses on your trade position by cutting them earlier before they escalate.
For example, if the price breaks below a key support level, you may want to sell by setting your stop-loss point slightly below support to nip the losses in the bud.
You can use both trend lines and moving averages to determine key support and resistance levels based on past price action so that you can determine the best points to place your stop-loss or take-profit either below and/or above support and resistance.
Key takeaways:
- The point at which you are willing to sell a stock and take the profit on your trade position is called a take-profit point.
- Take-profit (t/p) and stop-loss (s/l) orders are widely used as trading risk management techniques.
- Plan the trade and set take-profit and stop-loss points appropriately.