How to set Target and Stop loss
As a beginner trader, the first thing you have to know is to get clear about your perspective about the stock, either you want to buy it or you have to sell it. Once you have that clear in your mind then you should find your entry point and your exit point. These depend on the risk you want to take. Stop-loss and Target can be defined as advance orders to sell an asset when it reaches a particular price point. It is used to limit loss or gain in a trade. The concept can be used for short-term as well as long-term trading.
Pros Cons
Target
Target should be set at the maximum price that a stock can go. It also depends on your profit expectations. Target is generally set where there is resistance.
(TIP: Keep your target and stop loss a few point below the resistance zone)
It is advised to keep a target in the system and not in your mind. The beginner traders keep their target in mind and not on the machine and the price rises and touch their target which they had in mind and return back before they could even book profit and they keep on waiting for the price to come back. That is why the target order should be on the screen and not in your mind.
Stoploss
Stoploss, as the name suggests, is used to stop the loss or limit the loss. It is an advance order that square-offs the position as soon as the price reaches that level. The stop loss should be kept where support is or according to your risk appetite.
- "Set it and forget it" Limits gains
- Locks in profits Could be activated by a temporary price drop/flash crash
- Limits losses Realized sale price could be lower than the stop price
- Costs nothing Not suited to volatile stocks
- Avoids emotional/pressurized decisions
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