There will definitely be profits and losses in the trading process, so how to maximize profits between profits and losses?
Today we will discuss:
Questions about setting take profit and stop loss points
The stop-loss point is the maximum loss allowed for each transaction, and the stop-profit point is the profit that investors will realize by selling the stock when the price reaches a certain level.
Regardless of whether it is stop profit or stop loss, after the market has been moving for a period of time, certain signals appear that imply the need to leave the market.
The purpose of setting a profit stop point is to be able to make a profit in time and make a safe profit; to set a stop loss point is to prevent mistakes and avoid unlimited expansion of losses.
However, the stop-profit and stop-loss points are relatively difficult to set. Sometimes the profit is taken, but the market continues to rise. Sometimes the loss is stopped, but the market returns.
So how should we set a suitable profit stop point?
Before we start discussing, we need to understand: trading is conducted in the market, which has its own laws and principles. We need to consider taking profit and stop loss in conjunction with our own style and preferences while complying with its laws and rules. setting.
Under the above premise, let’s explore this issue from the following four aspects.
First, find your own profit margins
In layman's terms: the purpose of trading is to make a profit. To make a profit, you need a profit margin, that is, the distance between the entry price and the selling price. Your expected profit margin and risk tolerance are the key to determining the profit stop point. The level of the profit stop point will directly affect the size of the profit margin.
We mentioned at the beginning that the premise of our discussion is to respect the laws and rules of the market, and then set the profit stop point based on your own style and preferences.
According to the length of the trading cycle, it can be divided into short-term, medium-term and long-term. The length of the cycle will also affect the size of the profit margin.
Generally, the frequency of short-period fluctuations will be higher, the amplitude will be smaller, the risk will be lower, and the return on investment will be smaller.
In other words, you cannot expect that your investment will increase by 10 times in one day. It is unrealistic.
At the same time, the size of the profit margin also affects the time and possibility for us to get close to it.
The larger the profit margin is set, the longer it takes to get close to it, and the possibility of reaching it is relatively smaller;
On the contrary, if the profit margin is set relatively small, it will be easier to realize and complete it.
Just like running a marathon, the distance between the experience group and the competition group is very different. It is impossible for the same person to run the experience group and the competition group in the same time. The competition group has a longer distance and will definitely spend more time. .
To put it simply: the profit margin you hope to earn should be directly proportional to time.
After you confirm the profit margin of this transaction and the market starts to develop in the direction you expected, then you need to know the ways to stop profit.
There are usually three ways for individuals to take profit: direct take profit, line-based take profit, and trailing stop loss to take profit.
1. Take profit directly
Set the take-profit point during the rising process. When the take-profit point is reached, the profit will be taken directly. To set the profit stop point, you can refer to the key spatial position in the market (the highest point that first appears when the market fluctuates at a certain time, such as point A in the figure). If the previous lowest point is not lowered at point B, assuming the entry point is as follows As shown in the picture, you can consider taking profit when it exceeds the key position, as shown between C and D in the picture.
2. Watch the line and take profit
When the market is rising, we can also take profit and exit according to the shape of the K line, that is, look at the intensity changes shown by the naked K line to determine the position of the take profit. For example, when a "pin" suddenly appears during the rise "," heavy volume decline" or "cross star" and other turning K-line signals, we should pay attention to taking profits and exiting in time.
3. Follow stop loss and take profit
Lock in profits and protect investors' funds by constantly adjusting the stop loss price (exit price). This profit-taking method is more suitable for long-term stocks with high growth potential to ensure that a certain profit can be maintained when prices fall.
Assuming an investor purchases a stock at a purchase price of $100, they can set an initial trailing stop price of $90. As the stock price rises, investors can, based on a set strategy, for example, increase the stop loss by $10 for every $10 increase. In this way, when the stock price reaches $110, the stop loss price will also be adjusted to $100, which is the investor's buying price. This way, investors can remain profitable even if the stock price pulls back below $100.
Sometimes the market may not move in the direction you expect, so you also need to:
Pay attention to the degree of fluctuations in the operation
According to the magnitude and duration of the market rise, the market can be roughly divided into two types: simple market and complex market.
In a simple market, in the process of rising, the slope of the market always maintains a certain increase. Although there will be other fluctuations in the middle, it maintains a similar slope as a whole.
In complex market conditions, during the rising process, there is a large period of macro-adjustment (shock) in the middle before it starts to rise. This kind of market is usually more difficult to operate, and it also tests the traders' skills and patience. Many people will bear it in their hearts. I can't stand it and want to give up.
The choice of different market prices is based on the individual's own situation.
If you prefer simple market conditions, then using [Trailing Stop Profit and Stop Loss] will gain greater profit margins; and if you prefer complex market conditions, then using [Direct Stop Profit] or [Line Watching Stop Loss] will have better results. .
Finally, focus on the middle links
Investment trading does not mean that you can just wait for the harvest after investing. There will still be fluctuations between entry and profit taking. Just like planting, from sowing to harvest, you still need to take care of it, weeding, watering and fertilizing. and so on, to ensure that it can grow normally.
This intermediate link needs to be done carefully, both in terms of mentality and value. In the intermediate link of the transaction, what signals can we use to make a profit-taking signal?
Parity protection: Set a profit-loss ratio of 1:1. When the price rises to a certain height, you can move the stop loss point to the entry position. Stop loss when the price drops to the entry position
Trailing stop loss: Just like the trailing stop loss and take profit mentioned above
Early exit: Before the end of the trend, when the momentum in the trend weakens, the engulfing pattern occurs, and the slope changes from steep to resistance moving forward (as shown in the figure)
When these signals appear, you can consider taking profit and leaving the market.
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