Setting Your Profit and Loss Limits
The proper planning of a trading day always includes a review of the markets while scanning for potential day trading setups. After taking note of the setups that are available, you should then move on to choosing the best of these, and then go about the business of planning each trade before placing the orders. When you are ready to commit to a trade, call up the place order screen on your trading platform.
The order screen will have fields for the symbol of the security, number of units, and the price at which it will execute. In addition to these fields there are fields labeled “Take Profit” and “Stop Loss.” As you enter in the number of units of the trade, the trade value in dollars will show as well as the margin used. Before the submit button is pressed and the trade is executed, you can lock in your planned profit and limit the potential loss involved in this trade.
Using the “Take Profit” field, you would enter in the price of the security you would like to have the trading platform close the order automatically, which would lock in your gains. As you can see by the view of the trading platform and order entry screen of the FX trading site ONADA, the order is for a long position of 17,500 units of AUD/JPY in the FX market. The current price of the trade is 77.477 (meaning that one unit of AUD, the base currency, is worth 77.477 units of JPY, the quote currency. FX is always priced by taking the first currency, in this case AUD, and dividing it by the price of the second currency, in this case JPY), giving the trade a value of $14,794.32 using $295.89 worth of margin at 50:1. The take profit has been entered in for a quick turnaround and is set at 77.745. The order-entry screen shows that at this Take Profit price this trade will yield $56.93 in gains when the close order is automatically triggered.
You wouldn't take a trip to a foreign country without telling someone where you were going and when you would be back. You can tell yourself where you are going with a trade and when you are coming back by setting profit and loss limits ahead of the trade.
The next step you would take would be to use the stop-loss field of the order-entry screen to set the maximum amount of loss that could occur with this trade before the trade was automatically closed out. Although stop losses automatically close out trades at a loss, this loss amount can be programmed to be small in relation to your overall account dollar size.
