Why do you need to set "Take Profit" (T/P) and "Stop Loss" (S/L) orders?
Traders often argue about the necessity of setting "Stop Loss" and "Take Profit" orders. Some say that there can not be proper trading without them, some state that working without these orders more profit can be produced. Many newbies are confused with these discussions and can not decide what they should do. By reading further down you can understand the reason these orders are useful and necessary.
In fact, they are one of the most important elements of money management. They insure you from losing money and help you catch the pips before a reversal happened. "Stop Loss" (SL) and "Take Profit" (TP) orders help you to manage a trader’s system. Shortly after you set up these orders, you can be sure that you won’t lose more money than you can afford, or that you will get a number of pips you aimed for.
"Stop Loss" is an order that limits your losses by closing a trade. It signals your Broker about that and closes it.
"Take Profit" is an order that tells your Broker to close a winning position and take the money.
What are the benefits of SL and TP orders?
- You set them and keep calm, get rid of excess emotions and don’t become exhausted by watching the charts all the time. They eliminate fear and greed from your trading process.
- They prevent traders from catastrophic losses that could take place in case if a trade was losing, but a person hoped for a reversal.
- News or other unpredictable events can lead to extra volatility at the market and chaotic movement of the price. You will minimize your risks, if it would reverse into a wrong side.
In conclusion you can understand the significance of these orders. They don’t interfere the trading process and help you insure your funds. Don’t hesitate to use them but always be careful. Always know the value of your money and the possible consequences to unforeseen circumstances in the market.