When trading the markets your Stop Loss and Take profit levels are probably the most important things you should know before placing a trade as these define your trade plan and your risk management.
If you do not know your stop loss you cannot assess your risk managment and if you do not know your take profit price you cannot assess the risk reward for your trades.
Your stop loss price is used primarily for 2 things.
- To stop you losing more if a trade does not work out
- To calculate your risk and number of lots tradeable per trade.
Your stop loss will automatically close your trades at the price you set it at preventing the trade from causing you further loss.
Here is an example of how a stop loss can protect you from massive loss and pain
Your take profit price is that place you want to take profit on your trade. We use partial trade closing but this is beond the scope of this 101 arcticle.
It is also used to calculate the risk reward per trade.
It is not always necessary to set a hard take profit level not setting one though normally means you will have to more attentive to your trades.