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How to decide Stop loss: Understanding Target and Stop Loss in Trading

Updated: Dec 22, 2023

Understanding #Targets and #StopLoss in Trading Trading in the financial markets involves making decisions based on a multitude of factors, and one of the most common questions I encounter is, "What is the Target and what is Stop Loss?" The answer to this query varies from person to person, depending on their trading style—whether it's intraday, short-term, or long-term. Here, I'll break down the considerations for each trader type and provide a solution to the challenges faced in addressing course participants' queries on a daily basis.

Diverse Perspectives on Targets and Stop Loss:

  • Intraday Traders: Targets and Stop Loss are determined by the quick fluctuations within a single trading day.

  • Short-Term Traders: Focus on achieving goals within a short time frame, adjusting Targets and Stop Loss accordingly.

  • Long-Term Traders: Set targets and stop losses with a broader perspective, considering market trends over an extended period.

Solution to the Problem:

  • Chart-Based Decision Making: Start by deciding the Stop Loss based on a thorough study of charts.

  • Target Calculation: Set the initial target as twice the Stop Loss points. For instance, if Stop Loss is 90 and entry is 100, the first target is 120.

  • Profit Booking: Execute profit booking by selling half of the quantity at the first target (exercise caution against greed).

  • Trail Stop Loss: Adjust the Stop Loss to the entry price to secure profits and minimize losses.

  • Continuous Learning: Move forward and look for the next trading opportunity while learning from each experience.

How to find target and Stoploss
Target and SL Calculation

Implementation Across Trading Instruments:

  • Applicability: This strategy is suitable for equity, futures, and options trading.

  • Systematic Approach: Stress the importance of placing Stop Loss in the trading system rather than relying on mental notes.

Key Principles for Successful Trading:

  • Individual Analysis: Avoid blindly following others' views; instead, analyze charts rationally.

  • Emotional Control: Emphasize the need to remain emotionally detached from trading decisions.

  • Market Respect: Acknowledge that the market offers opportunities for profit; viewing it as a trap is counterproductive.

Parting Wisdom:

  • Financial Market Dynamics: Contrary to the belief that the market traps individuals, it presents ample opportunities to generate income.

  • Respect for the Market: Encourage traders to approach the market with respect, recognizing its potential for profit.

In conclusion, trading success lies in understanding individual preferences, implementing a systematic approach, and embracing a rational mindset. By adhering to these principles, traders can navigate the dynamic financial markets with greater confidence and success.

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