Tag: Take Profit

  • How to improve risk management in trading?

    How to improve risk management in trading?

    How to improve risk management in trading?
    Improving risk management in trading could be a life-changing factor.

    By Guy Avtalyon

    I’ll start straight to the point on how to improve risk management in trading. Risk management in trading very often stands very low on the priority list for many traders. The main concern is the entry signal or other indicators. I have to tell you this isn’t the right way. Nothing is wrong with waiting for the proper indicator, but if you don’t have decent knowledge about risk management in trading, you will not have profitable trades. The point is to know how to manage your risk, size your position for each trade, and set your orders accurately if you want to make a profit in trading.

    And you might think it is unnecessary, and it isn’t so important. If that is your case, feel free to not continue with reading this post. But I have to warn you that if you never improve risk management in trading, you’re at risk of becoming a steady loser. 

    And why should you be that if there are some tips to avoid the most common problems?

    Tips to improve risk management in trading

    If you adopt some of these tips or approaches, you’ll stop losing your hard-earned money.

    First, you must realize how you let the trade get out of your hands. Yes, it’s kind of looking back but never think about this as wasting your time. If you make a scrutinizing evaluation of your past trades that ended in losses, you’ll find the reasons behind them, and you’ll find the pattern. The main benefit of this introspection is to avoid similar behavior in the future. Knowing how and why you made mistakes, you’ll be prepared and will never repeat the same trading mistake in the future.

    Setting orders and the risk/reward ratio

    When you identify an entry signal, do you know where to set your stop-loss and take profit orders? You have to know that even before you enter the trade. How to do that? Let’s assume you know where to set the stop loss and take profit orders after determining the appropriate price levels. The next step should be to measure the risk/reward ratio.

    If you find out the risk is bigger than the reward, just skip the trade. The worst thing you can do is stretch the take profit order or squeeze your stop loss to reach a higher risk/reward ratio.

    Keep in mind; trading is mostly unpredictable, so the reward isn’t assured. The only thing you can control is the risk involved in your trades. You shouldn’t neglect that and act unreasonably. I’m a hundred percent certain that most of you determine the risk/reward ratio randomly and adjust your stops and profit orders to reach that ratio. Guys, it’s an entirely wrong way.

    Compare win rate and risk/reward ratio together

    Many traders insist that figuring out the win rate is pointless. But they miss out on a crucial point. Watching the win rate alone has no value, but if you observe win rate and risk/reward ratio together, you’ll be closer to winning trades. Having winning trades is every trader’s dream.

    I want to be clear with this, you shouldn’t necessitate an excessively high win rate. For instance, a trading strategy with a win rate of 40 percent requires a risk/reward ratio below 0.6 to be profitable.

    A win rate of 40 percent is average for the most profitable traders. Why should you want an insanely high win rate? That’s wrong and could lead you to significant losses.

    Balance win rate and risk/reward ratio

    You must find a balance between the win rate and the risk/reward ratio. For example, the high win rate could mean that the risk/reward ratio also is high. 

    Suppose you found a stock that is trading at $20, down from a recent high of $25. And you bought 50 shares because you had $1,000 for that purpose.

    If the stock price went up to $25, you can make $5 for each of your 50 shares, and in total it is $250. You paid $1,000 so you have to divide 250 by 1,000 and the result is 0.25.

    That means that your risk/reward is 0.25:1. It is a very low risk/reward ratio.

    Assume that you have made 15 trades, of which 6 were winners and 9 were losers. So, the win/loss ratio is 6/9, or 2:3. In percentages, the win/loss rate is 6/9 = 0.66. This means you are losing just over 66 percent of the time. Using your total number of trades which is 15, your win-rate would be 6/15 = 0,4×100 = 40%.

    You can be profitable with a 40 percent win rate if risk/reward is below 0.6. As can be seen from the formula for calculating the needed win rate for profitability based on the risk/reward ratio, 1/(1+ risk/reward ratio).

    The risk/reward decreases when the win rate decreases. In other words, if you have more losses, your winners must be bigger to be profitable.

    Size your position

    I’ve met many traders that size their positions randomly picking some levels of 2 percent, 4 percent, and never change that. It’s totally insane. You have to estimate the chances to win because trading is all about possibilities. It’s normal to change position sizing for every trade if it is necessary, and mostly it is. Why should you hold the same position size when you see virtually no chances of winning? 

    In trading, every strategy has a different win rate. So, the risk/reward ratio for each of your trades will vary. This is especially important if you trade using many strategies or setups.

    The point is to reduce the trades’ position size with low win rates and increase it for the trades with higher win rates.

    If you want to improve risk management in trading, you should never overlook the risk/reward ratio and money management. Otherwise, you’ll blow your account. If you take too much risk to make a quick profit, you’ll likely end up in losses. 

    You’ll go bankrupt because of a lack of knowledge about risk management. Now onwards, you have to rigorously adhere to position sizing and risk management if you want to be a profitable trader.

    Pay attention and improve risk management in trading

    You might love your trading style or some strategy, particularly, but you should consider improving it to achieve more profitable trades. After some time, everyone should jump to the next level. I know you could be impressed by indicators, waiting for the right signals to show you the right time to enter the trade. It’s so exciting and sexy, right?

    Well, it’s also risky if you never improve your risk management. It isn’t so exciting as watching the charts, candles, following the news, and waiting for the indicators, but it is essential for your future trades and your profits. Blinking indicators and trading strategies will benefit you for some time, but the real difference comes with improved risk management.

    Don’t be worried. A small number of traders really pay attention to this matter unless they have a series of losing trades. Then and only then. they will start thinking about how to improve risk management in trading. But you have a chance to shortcut this path. Why suffer losses if you can trade with more attention to the risk management from the beginning instead. 

    It doesn’t take too much. 

    Did I miss something? Share your opinion with me, leave a comment, ask me what else you would like to know. I’m here for you, guys.

  • Exit Strategies For Smart Trading

    Exit Strategies For Smart Trading

    Exit Strategies For Smart Trading
    Most traders fail because they don’t have the exit strategies but they are maybe more important than entries. 

    Exit strategies for smart trading mean that you as a trader know where to stop losses and take the profit. Of course, you can’t do it randomly by setting stop-loss at 1%, 2%, 5%. Anyone who wants to become a trader must know the statistics: 90% of traders lose money when trading the stock market. Well, 10% make money all the time. Traders-Paradise’s aim is to show you how to trade smart, how to enter the elite club of 10%.
    Everyone seeks to be in the 10% who make money, but the number of those who really want to devote is surprisingly small. You will need exit strategies for smart trading. 

    But there is a problem. Exiting a trade makes traders hesitant. We want to explain exit strategies, their importance, and give you a chance to make a profit, not a loss. In simple words, we’ll explain to you how to do “smart trading”.

    Trading is easy but you need the know-how 

    Stop-loss (S/L) and take-profit (T/P)  are the two main points that traders have to plan ahead when trading. Successful traders know there are several possible results in trade. They know that they can exit too early or too late and miss out on the profit. The other solution is to exit a trade at an accurate time which results in making money. We want you to look right there, to the point where you can exit your trade in profit.

    Have you ever heard saying “let your profits run”? Well, some will run for a long time but some will fall on the start.

    If you want to earn in trading stocks you have to do something that others don’t. You need an exit strategy established for each trade. This means you must have a trading plan.

    Knowledge united with experience and effort to produce success

    To make this clear, you will not find any consistently profitable trader who will tell you that relies on luck. Every successful trader has great knowledge, experience, and trading goals.

    Some statistics tell us that learning to trade stocks requires two to five years of experience. Well, that’s hard work and commitment and there are no shortcuts. Don’t be worried or give up now! Trading stocks isn’t rocket science! The interesting thing with rookies is most of them seek for complicated solutions. Don’t let be seduced by gurus in the industry. The whole thing can be very simple.

    The exit strategies for smart trading

    One of the exit strategies for smart trading is to use targets to book partial profits. How does it work? Before you enter the position you have to define targets and when they come, take some part of your position off for profit. The portion of how much you’ll take off depends on your risk tolerance and trading plan. An experienced trader will take off 1/3 of their position or even half when the first target is scored. 

    Advantages

    This has several advantages. The stock market is volatile and stock prices are shifting direction quickly, so it is smart to book a part of the profit because you will not like to look at the market going against you. It is a bad experience and painful. So, try to avoid that. Well, when you take off some part of the profit, you will still have the other portion in the game. Smart enough? Anyway, this trading plan is simple. But there are plenty of other exit strategies for smart trading. 

    One of them is profit targets which means to identify the profit targets for the current cycle of stock. You would like to know where the price is possible to go. The point is to determine if you have to get out or stay in. But placing profit targets shouldn’t be randomly placed. So the most important feature you need is to check if your exit strategy is good. How can you do that – find HERE. This a game-changer. Check it out! Note, you shouldn’t place your profit targets too far away or too close.

    Stop-Loss strategy

    Did you make your first stock trade? What are you doing now? Are you relaxing and waiting to become a billionaire? Don’t do that! Even if you see your stocks running higher there will be one or few starting to fall. What are you going to do now? You have to know that just one loser can ruin your whole capital. 

    The point is that the stock market is risky and all money that you invest in stock may end up in 100% loss. Of course, you shouldn’t stop investing and trading. So, just take some steps to ensure that you reduce your losses. There is a way to do it. If you place a stop-loss, you practically ensure that your losses do not exceed a specified amount. A stop-loss order means to sell a stock when it enters an established price or percentage. For example, you bought a stock for $100 and you don’t want to lose more than 7%. All you have to do is to place a stop-loss order at $93. If your stock drops below $93 your stock will be automatically sold. The other possibility is your stock is going up. So, let’s say, it trades at $160. That’s a very nice profit of $60 or 60%. What can you do? Just lock in profit at $130, for example, and set a stop order at the same amount. 

    The benefits

    A stop-loss strategy provides you to stay in the game. If you put a 4% stop on your trades, you will never lose more than 4%, for example. It is simple, yet many traders do not use it. Moreover, they don’t have an exit strategy. We have to say, that isn’t trading, that is gambling.

    What stop loss percentage should you use? Some experts’ recommendation is 8%. At the moment you buy a stock, immediately put a stop-loss at the level you are willing to lose. Nothing less, nothing more. You can adjust your stop-loss order depending on the stock price direction. 

    Why exit strategies for smart trading?

    Exit strategies boost assurance and profitability. Calculate reward and risk levels before entering a trade, find a strategy to exit the position at the most profitable price, no matter if you are taking a loss or a profit.

    The traders caught the losses due to a lack of exit strategy from the trade before they entered the trade. 

    The majority just take the position in the stock market. Do they have any idea of where to exit the position? What to do if the stock moves in both beneficial or bad directions? A lot of traders ask for help after taking a position. Hence, you should never fall into that trap. You MUST have exit strategies for smart trading. Otherwise, you will lose your capital, home, family. Exit strategies bring discipline. It is important for every trader to take out the profit at the right time. Let us ask you something. Why are you trading stocks? To make money, of course. That’s why you are in the stock markets. Taking profits is the main goal, right? That is possible only and ONLY if you have an exit strategy.

  • Take Profit Order – Limit Your Risk

    Take Profit Order – Limit Your Risk

    3 min read

    Take Profit Order

    Take Profit order or shorter TP is extremely essential element in all tradings. How to place the Take profit order? The question of how to place stop-loss order is one and those two are related and connected.
    So we have to make some distinctions.

    Stop-loss order linked to the risk when you take a position.

    Take profit is related to the gain for your open position.

    Both of these elements form what we call – money management. We told you about Stop-Loss in the prior posts. In case you missed it, you can read it HERE or HERE.

    But let’s stay awhile with the definition of “Take Profit” order.

    Take Profit order is a limit order. Traders use it to close a position when the market touches a specific price level. To be more clear. Take profit represents the reward that a trader planned before taking a position. Take Profit order has to follow, must go in the same direction as the market. The trader is free to define the level of reward depending on his/her feeling of how much risk is taken to obtain adequate profit.

    Take Profit order is similar to Stop Loss order, meaning, it is an exit order. Yet,  Stop Loss order will limit your loss on a trade, but Take Profit means a price at which a successful trade will be automatically closed. To make this simpler – Take Profit is your profit target. That is the reason why you always have to set Take Profit order at the level you are expecting the price will catch. When you buy, for example, a stock, your Take Profit order must be higher than the current price. But if you are selling a stock, your Take Profit order should be below the current price.

    Yes, we know you have an excellent idea. 

    But do you know how to place a Take Profit order? 

    If you do it wrong, you will not make a sufficient profit.

    Levels of resistance and support will help you to place a proper TP. This strategy is the most successful and we will show you why.

    Take Profit Order

    First, locate a resistance level in your chart. Then place a Take Profit order a bit below the resistance. In this way, when you place TP under the resistance level, you will increase your chances to match the level that the price will hit. The next step is simple, just close your position and make a profit. This profit will always be higher.

    This is in case you notice an upward trend. But if you notice a downward trend, you have to determine a support level.

    In that case, TP has to be a bit over the support.

    Contrary to the situation with resistance, a TP level should be a bit over the support.

    Experienced traders have some TP tips. One of them is that the TP must be 2 or 3 times of the SL value. But this advice is doubtful. You have to consider more indicators, not just one. If you are trading Forex, this strategy will work for you.

    But if you are trading stocks some other rules are more convenient.

    You will make the most gains in the 20%-25% range.

    If you see a notable increase of 20% to 25% – sell.

    Why this 20%-25% range?

    Stocks tend to rise 20% to 25% after breaking out the support, then fail and set up new support. Sometimes this game resumes their progress.

    In Traders-Paradise’s Full Trading & Investing Course – Secrets Revealed

    (don’t forget to subscribe while it is free of charge, the time is limited) you find a fantastic lesson about the rules and among them an explanation of the Rule of 72.

    Following Rule 72 you can easily calculate why the 20% to 25% is adequate Profit take range.

    How to calculate?

    Divide 72 by the percentage gain you have in stock. The result will show you how many times you have to compound that gain to double your capital. Let’s say you get 3. Re-invest your capital plus gains 3 times. You will double your money easier than to make 100% profit from one stock. The net profit will be greater. But as we mentioned, you have this all and detailed explained in Traders-Paradise’s Full Trading & Investing Course – Secrets Revealed

    Why place a Profit Target?

    Determining where to exit before trade begins allows you to calculate the risk/reward ratio.

    The stop-loss defines the possible loss on a trade. But the profit target defines the possible profit. Logically, the possible reward should exceed the risk. 

    By trading with a profit target, it is possible to estimate whether a trade is worth taking. If the profit potential doesn’t exceed the risk, don’t take a trade. By establishing a profit target you can eliminate weak trades.