Another topic of investment operations is how to set take-profit and stop-loss properly. If the setting is unreasonable, it is easy to wipe out both long and short positions, making stop-loss or stop-profit meaningless. Therefore, setting Appropriate Stop-Loss and Take-Profit can be classified into four types:
- Essentially setting +/- $5USD on Buy/Sell Price;
- Technical Indicators reveal Bull/Bear signals;
- Use morphology acquired Support/Pressure to make judgments;
- Breakthrough on either previous Ridge/Trough as the threshold.
Contents
Essentially setting +/- $5USD on Buy/Sell Price：
For example: if the buy price of a Long order is $1200, set a direct Take-Profit & Stop-Loss of range by $3~5, that is, closing the order if it falls to around $1195~1197, and Take-Profit when it rises to $1203~1205. If the Opening Price of a Short order is $1,200, then Stop-Loss if it rises above $1203~1205, and Take-Profit if it does depreciated to $1195~1197.
The advantage of this method is that it is Simple & Easy to Understand, but the disadvantage is that the fall (rise) of 3~5 dollars may be close to the support (pressure), and the stop loss may be sold at a relative low point. Therefore, it is best to use it with technical indicators to make the best result on Take-Profit & Stop-Loss.
Technical Indicators reveal Bull/Bear signals：
When technical indicators appear,
- Buy signals → go Long; and,
- Sell signals → go Short.
For example: KD Golden-Cross (K value > D value) Buy Long order, KD becomes Death-Cross (K value < D value), then the Long order will be closed, not only just depending on the scope of $3~5 to decide go or stay.
On the contrary, the KD Death-Cross will be Short order, and when the indicator turns Golden-Cross, the Short position will be closed.
Use morphology acquired Support/Pressure to make judgments：
Use Dow patterns (triangles, W and M heads, head and shoulders bottoms (tops), flags, etc.) to calculate buying and selling points. For example: when there is an upward breakout at the end of the triangle arrangement, you can buy a long order at the breakout point;
Conversely, if you have a short order in your hand, you should close the short order at the breakout point of the rise, and after the breakout, you can also calculate the potential minimum increase by the amplitude of the pattern, and place more orders to take profit at the estimated increase.
Or after falling below the trend line, closes the long position, and calculate the potential minimum increase by the amplitude of the pattern. Then placing Short order(s) at the theoretical initial decline, to achieve most possible interest.
Breakthrough on either previous Ridge/Trough as the threshold：
This measurement is also relatively simple. For example, if we buy a Long order at $1200, and the previous trough is on $1190, then the Buyers can make $1190 as their Support Point, and given that it did falls below $1190, the order would be closed automatically if the Stop-Loss were pre-set on the system.
On the other hand, if the previous ridge was on $1220, in case if the price rises to $1220, the order would be closed automatically if the Take-Profit were pre-set on the system, and vice versa for the Short order(s) in the converse scenario.
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