Mistakes in Setting Stop Loss and Take Profit Trading

One of the abilities that must be possessed by a trader is to determine stop loss and take profit. This strategy can be said to be a little tricky and requires strong analysis. In learning about the basics of forex trading, a topic that is commonly discussed is the importance of knowing and determining the right place as a position entry point. However, this trading management cannot be ignored because even though they have good entries, traders can still lose if they are not able to determine the ideal exit point.

In practice, traders must understand that the total profit earned is the result of the difference between gross loss and gross profit. So, traders do not need to remember that trading success can occur if the total profit exceeds the total loss. It's a bit impossible to trade without incurring losses, so risk management is seen as very important in trading. In forex trading, stop loss and take profit are part of the basic risk management.

Determining Stop Loss and Take Profit Too Close

This is the first mistake that traders often make. Keep in mind that the forex market can change quickly at unpredictable times. If a trader places a stop loss or take profit too close or close together, it is possible that the position will be stopped before the price goes in the desired direction. In other words, traders are too quick to assume in the beginning before seeing the real movement.

For example, a trader will open a long position on GBP/JPY at 145.00 with a stop loss at 144.90. Even though the trader's calculations are correct if the price will bounce around that number, there is still a possibility that the price will decrease another 10-15 pips before finally rising, assuming it is up to 147.00.

So, it is important to give breathing room when determining stop loss or take profit to avoid a scenario like the one above. Traders should also always check the volatility of the target market, as this is closely related to price fluctuations on the chart.

On the other hand, this breathing space can't be too big either. The thing that needs to be understood is that placing a stop loss or take profit point that is too far apart also does not guarantee a profit.

Basically, these two points are useful for preventing traders from losing too much by warning that the market is not moving as expected. If both are placed too far from the entry point, the warning function will no longer be useful. In addition, it is important to pay attention to the Risk/Reward ratio in trading.

Using Position Size as a Basis for Calculations

Using a position size of “x pips” or “x dollars” to determine the stop loss is a big mistake. In reality, the market does not move based on the number of lots the trader enters, but the opposite. Traders who should adjust to market dynamics. That way, traders must have good analytical skills in order to choose the right stop loss or take profit point.

The most appropriate trading flow is to analyze and determine the stop loss and no profit points before opening a trading position. The advantage in this case is that before there is a risk of losing capital, traders can be free from emotional influences when trading, and can judge objectively when to continue or stop.

Putting Stop Loss and Take Profit at the Right Support Resistance Limits

In addition to choosing stop loss and take profit positions that are too close and far away, another mistake that traders often make is placing right at the support resistance line. The reason is a return to market volatility.

Keep in mind that the forex market moves in an erratic pattern, so the support and resistance lines cannot be used as a benchmark for determining the complete stop loss and take profit.

The possibility is that the price could make a reversal or change direction before hitting the line. The price can even exceed the limit first before finally experiencing a change in direction, either in the form of a reversal or breakout.

As a trader, you should simply use these limits as a tool. Although sometimes it looks attractive and trustworthy, but you also have to take into account the risks.

The best way that can be done is to choose stop loss and take profit near the two dividing lines, but not exactly on the line. Give the distance so that the price still has room to show the direction of its movement even though it has crossed the dividing line.

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