Many traders spend the majority of their time perfecting their entry-picking skills without realizing that choosing an entry is just one aspect of a good method. Setting Stop-Loss and Profit Taking orders are equally, and sometimes even more important, than knowing how to enter a trade. The following 7 points will help you understand why a professional and thought out Stop-Loss and Profit Taking strategy can make a huge difference in your trading and how it can potentially improve your current approach.
Choose your stop before your choose your Profit Taking
Most traders set their stops and targets in the complete opposite way of how it should be done.
First, you should define the stop loss level and identify a price level where your trade idea is proven wrong. Do not pick a stop loss level based on the profit potential and the reward to risk ratio you want to achieve.