Trading mechanics
Take profit
A resting order that closes a position at a target price. Paired with a stop loss it fixes the reward-to-risk ratio of a trade at the moment it is placed, before the outcome is known.
GFN’s figure
Against a GFN 10% 1 Step target, thirty trades at 0.5% risk and a 2:1 reward-to-risk ratio reaching target 40% of the time clears $10,000 on a $100,000 account - one illustration of an arithmetic that has many shapes.
In detail
Take profit,explained
A take-profit removes the hardest decision from the point at which it is hardest to make. It also caps the winners, which is the trade-off a trailing exit is designed to avoid.
On an evaluation the discipline is worth more than the upside: a fixed target makes results comparable across trades, which is what makes a sample of them meaningful.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Stop loss
A resting order that closes a losing position at a predetermined level. It is the mechanism that turns a risk-per-trade figure into an actual limit rather than an intention.
Risk-reward ratio
The size of a trade's target relative to its stop, expressed as a ratio. A 2:1 trade risks one unit to make two, which sets the win rate the strategy needs in order to be profitable.
R-multiple
A trade's result expressed in units of its initial risk. Risking $200 and making $600 is +3R; hitting the stop is -1R. It makes results comparable across account sizes and position sizes.
Limit order
An instruction to trade only at a specified price or better. It controls the price but not the fill: if the market never reaches the level, or passes through it too quickly, the order does not execute.
Partial close
Closing part of a position while leaving the remainder open. It banks some of the result and reduces the risk carried by the trade without giving up exposure entirely.
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