Stop-Loss and Take-Profit
What is Stop-Loss?
Stop-Loss is an order type that is placed in the case where the position starts losing the trader money. When the asset price reaches a specific price it will sell the asset to avoid further loss. For example, the trader may want to set their stop-loss at 5%, once the position falls by 5% the position will be sold to avoid a further loss to the trader. Stop-loss can be both used for long and short positions.
What is Take-Profit?
Take-profit is a type of order where the position will be sold for a profit. For example, the trader wishes to make a 5% profit on their position, they will create a limit order at 5% above their entry so once the price action hits his limit order it will sell for 5% profit. A lot of trading strategies have a specific risk ratio which determines their take profit % so the trader is able to place their take profit ahead of time and not have to worry about manually exiting the trade.