When executing a trade, there are important elements that you should remember to keep your venture secure. The whole point of engaging in this exercise is to get a percentage profit after the closing of an exchange. When incurring losses, this is a sign that your strategy is not working as intended, and you should revisit your whole model. It could either be in your approach, how you enter these markets, or your predictions are wrong caused by an error in observation of the patterns. Issues could also be caused by the wrong input of the formula used to calculate that technical indicator’s variables, and plotting them on the charts under a particular set of settings. All this is done to ensure that as an investor, you do not lose any of your capital, and you can account for your losses if any.
There are occasions when the price would tend to pull back, in an attempt to revert to its initial movement, but it retraces and then moves to the predicted direction. On some occasions, the price does not retrace, however, it continues to move in the direction opposite to your prediction. As a trader, such is definitely bad news, and it should signal you to exit that exchange as soon as possible. Especially if the opposing pressure is high, then you’re better off exiting that trade at any position and take time to find out where you went wrong. In as much as these are predictions, the patterns and signals are meant to guide us closer to the truth. Such signifies that there is a chance these predictions could be true if used correctly.
These are what can be termed calculated risks. Such are amounts that you could be willing to lose at a given point since, in business, there are times when you’ll lose money to gain money. The calculated risk money has to have a limit, depending on the size of the volume you’re moving, and that of your account. When executing an exchange, it is wise to include a stop loss. This is the point which, if a trend surpasses and moves beyond this area in the direction opposite to your prediction, then that market will automatically kick you out, saving you from losing any of your money. Such an amount may not equate to quantifiable, but if you keep making wrong predictions, then you could lose all your capital from this area. You should always strive to ensure that this area is only a precautionary position, and not considered to be a part of an exchange.
Stop-loss is placed at a point where the price reaches its highest high if you are selling, or its lowest low if you intend on buying, based on those previous candlesticks. Here is the best place to place your exit signal since if your prediction is correct, we are likely to see a pullback, but the price will not reach the previous highest or lowest points. We’ve got a trailing stop loss, which is mainly used if you do not plan on staying on the charts to observe the trade. It works by following the price’s momentum, where if the trend moves in the predicted direction, the stop follows it. If the trend reverses, then this stop halts and maintains its position, allowing you to get your profits.
Take profit is an area where you estimate price will reach. Once the price reaches this area, the trade automatically removes you from that market, even if it is continuing on the intended side. If the movement reverses and the price had not yet hit that area, then there is no profit for the investor. Unless there occurs a range after which the value continues to move in the initial direction, then the investor is most likely to record negatives if he does not exit the exchange quickly. These points are determined by conducting certain technical analysis that involves the study of previous support and resistance levels depending on which side you are on.
Money management techniques such as the Kelly Criterion can also be employed in this analysis. Such a point allows you to go on about your day without having to worry about when is the best time to exit that trade. As per your calculations, the number of pips is enough profit for you. A trailing stop loss following momentum to where price hits the take profit mark is a safe way to execute your trades.