How and where to place Orders, Stop Losses and Take Profits
Hey TradingViewers!
How's it all going!
Following on from our Trading Support and Resistant Series, here's How and where to place Orders, Stop Losses and Take Profits.
If you've been following the previous posts (When Support becomes Resistance, and Resistance becomes Support and How to identify trades using Support and Resistance) you'll notice we're using the same chart to place our orders, stop losses and take profits, and also, as we're responsible traders, the reasons why we're placing them where we are.
So let's do this!
We're going to use Trade Setup "a" as our example here.
We've identified why we're going to place this SHORT here, those reasons were:
So we place a SHORT order, and at this point we'll also place a Stop Loss.
For any beginners out there, a Stop Loss order will close your trade if the price moves against you too much. You specify where to place the Stop Loss and they're important because without using a Stop Loss, you can risk losing an unlimited potential.
So now we know what a Stop Loss is, where shall i put it?
If you put it too close to your initial entry, you run the risk of stopping your position out, too far and you run the risk of losing money unnecessarily.
Which brings us back to our Support and Resistance lines from the first Tutorial and the reasons why we entered the trade in the first place.
The price has failed to breach Line 0, which is your Top Level of Resistance, and is currently under the Line 1 downtrend. If i wanted to be safe and give my trade the greatest chance of success, i'm going to place it above where the market can't currently get past, and for us in this instance, that's Line 0. I also place it above Line 0 and not on it. Now if the market is to catch our Stop Loss, it would first have to break Line 1, and turn Line 0 into Support which is unlikely considering the reasons we used to entry the trade initially! (I told you the reasons are important!)
Now we have our Stop Loss set, let's take a look at Take Profits.
As a general rule of thumb, when SHORTING your Take Profits will occur at areas of SUPPORT, and when LONGING, your Take Profits will occur at areas of RESISTANCE.
Since we're shorting, we're going to look for an area of support. And what did we discover was an area of support? When price has moved significantly counter to the current trend, which for us in this instance, is our first Take profit zone, or Line 2.
If we look further down the chart we see all of our Take Profits are at the corresponding support levels, TP1 is close to Line 2, TP2 is close to Line 3 and TP3 is close to Line 4. And why are they placed here? Because price has moved significantly counter to the current trend.
Let's look a little closer here, TP1, TP2 and TP3 are all above the Support lines, why is that?
That's because putting your Take Profits at the very base of support reduces your likelihood of your TP being fulfilled. In the event of a swift reversal, the price may not touch support before riding much higher, erasing those well deserved gains.
So now you're probably saying "I can place a trade, a stop loss and take profits. I have good reasons why i'm doing all those things, but when do i close?".
The reasons for me to close a SHORT are the same as when i see a reason to open a LONG on the same currency PAIR. Likewise, i'd close a LONG when i see a reason to open a SHORT. Lucky for us, we have two opportunities to close this trade in profit, as well as create further profit by creating a LONG entry.
Let's take a look at Trade Setup "d". If you're not sure what this is referring to, it's the reasons for entering the trade on my post "How to identify trades using Support and Resistance".
At "d" we saw this as a potential trend reversal for these reasons:
So if we think about it, we're in a profitable SHORT, but we have strong reasons to believe a reversal is in progress. If i'm being cautious, and to maximise my profits, i'll close this trade here at CLOSE 1.
Sure, but isn't it possible the trade get's rejected by Line 3 and heads further down? And it is, and that is a Traders Trade Off (TM). You are trading the known for the unknown, all the while being in profit.
If you were looking for more certainty then of course, you'd wait to see how market behaved once it reached Line 3. In this instance, trade setup "e" is a very strong LONG position (reasons in the previous post), and as such, i would close my SHORT at CLOSE 2.
Thank you all for your time, i hope that it's been helpful,
For_The_Many
How's it all going!
Following on from our Trading Support and Resistant Series, here's How and where to place Orders, Stop Losses and Take Profits.
If you've been following the previous posts (When Support becomes Resistance, and Resistance becomes Support and How to identify trades using Support and Resistance) you'll notice we're using the same chart to place our orders, stop losses and take profits, and also, as we're responsible traders, the reasons why we're placing them where we are.
So let's do this!
We're going to use Trade Setup "a" as our example here.
We've identified why we're going to place this SHORT here, those reasons were:
- It was quite significantly rejected from Line 0
- The counter move from Line 2 wasn't able to surpass Line 0 and didn't create a higher high
- Constant rejection from the Line 1 downtrend line
So we place a SHORT order, and at this point we'll also place a Stop Loss.
For any beginners out there, a Stop Loss order will close your trade if the price moves against you too much. You specify where to place the Stop Loss and they're important because without using a Stop Loss, you can risk losing an unlimited potential.
So now we know what a Stop Loss is, where shall i put it?
If you put it too close to your initial entry, you run the risk of stopping your position out, too far and you run the risk of losing money unnecessarily.
Which brings us back to our Support and Resistance lines from the first Tutorial and the reasons why we entered the trade in the first place.
The price has failed to breach Line 0, which is your Top Level of Resistance, and is currently under the Line 1 downtrend. If i wanted to be safe and give my trade the greatest chance of success, i'm going to place it above where the market can't currently get past, and for us in this instance, that's Line 0. I also place it above Line 0 and not on it. Now if the market is to catch our Stop Loss, it would first have to break Line 1, and turn Line 0 into Support which is unlikely considering the reasons we used to entry the trade initially! (I told you the reasons are important!)
Now we have our Stop Loss set, let's take a look at Take Profits.
As a general rule of thumb, when SHORTING your Take Profits will occur at areas of SUPPORT, and when LONGING, your Take Profits will occur at areas of RESISTANCE.
Since we're shorting, we're going to look for an area of support. And what did we discover was an area of support? When price has moved significantly counter to the current trend, which for us in this instance, is our first Take profit zone, or Line 2.
If we look further down the chart we see all of our Take Profits are at the corresponding support levels, TP1 is close to Line 2, TP2 is close to Line 3 and TP3 is close to Line 4. And why are they placed here? Because price has moved significantly counter to the current trend.
Let's look a little closer here, TP1, TP2 and TP3 are all above the Support lines, why is that?
That's because putting your Take Profits at the very base of support reduces your likelihood of your TP being fulfilled. In the event of a swift reversal, the price may not touch support before riding much higher, erasing those well deserved gains.
So now you're probably saying "I can place a trade, a stop loss and take profits. I have good reasons why i'm doing all those things, but when do i close?".
The reasons for me to close a SHORT are the same as when i see a reason to open a LONG on the same currency PAIR. Likewise, i'd close a LONG when i see a reason to open a SHORT. Lucky for us, we have two opportunities to close this trade in profit, as well as create further profit by creating a LONG entry.
Let's take a look at Trade Setup "d". If you're not sure what this is referring to, it's the reasons for entering the trade on my post "How to identify trades using Support and Resistance".
At "d" we saw this as a potential trend reversal for these reasons:
- Line 4 Is an upward trending line which has been tested and has moved significantly counter to the current trend each time it has been visited.
- Line 1 has now been breached and is acting as Support, signalling that the price is not going to continue downwards.
So if we think about it, we're in a profitable SHORT, but we have strong reasons to believe a reversal is in progress. If i'm being cautious, and to maximise my profits, i'll close this trade here at CLOSE 1.
Sure, but isn't it possible the trade get's rejected by Line 3 and heads further down? And it is, and that is a Traders Trade Off (TM). You are trading the known for the unknown, all the while being in profit.
If you were looking for more certainty then of course, you'd wait to see how market behaved once it reached Line 3. In this instance, trade setup "e" is a very strong LONG position (reasons in the previous post), and as such, i would close my SHORT at CLOSE 2.
Thank you all for your time, i hope that it's been helpful,
For_The_Many
Thanks, as Always
For_The_Many