How to Calculate Stop Loss and Take Profit Easily // set profit target limit order forex stocks investing day trading david moadel
welcome to looking at the markets with David Modell I'm going to show you how
to quickly and easily calculate your stop loss and your profit target alright
your stop loss is going to be below the current price of the stock where you
bought it okay and that way you can avoid having a large or unmanageable
loss you'll just take a small loss if things go against you if you buy a stock
and it goes down now what if you buy a stock and it goes up then you want to
have your profit target and that's going to be a price above the price where you
bought the ETF or stock or currency commodity cryptocurrency whatever it is
this works for anything almost anything you can buy all right
so let's do the profit target first that's going to be a price above the
price where you bought it all right so right now just as an example I'm on
Google Finance right now and I'm looking at SLV which is the iShares silver trust
it represents a silver okay it tracks the price of silver and let's say right
now it's $14 in 96 cents per share let's say that's where you bought it all right
let's say you bought it right now at that price first you could set your
profit target that's going to be a price above 1496 and that's where you're going
to sell it if things go the way you want it to okay if the price goes up alright
so how do you calculate that well you definitely want to make your profit
target bigger than your stop-loss okay because you want to let your
winners run and you want to cut your losers short all right in other words
you want to make more money when you win then you lose when you're wrong okay so
let's say you want to make your profit target I don't know let's say your
profit target is going to be 15% above the current price and your stop-loss is
going to be 5% below at the current price that's actually a nice ratio all
right so 15% above the current you know the
price where you bought it and 5% below for the stop-loss
that's a three to one ratio all right 15 percent to five percent that's three to
one and I like a three to one ratio that way
if you win then you win three times as much as you lose when you're wrong all
right and that way even if you're right only half the time because it's a
three-to-one ratio you still come out ahead on average if you have a large
enough number of trades no guarantees but that's how it often plays out all
right so all right so let's go ahead and set our a profit profit target first we
want it fifteen percent above the price where you bought it let's say you bought
it at fourteen ninety six so you type in fourteen point ninety six all right and
you want it fifteen percent above so what you do is you add 15 to 100
all right you add 15 plus 100 you could probably do that in your head it would
be a hundred and fifteen all right so times you type in the share
price and then times and then not fifteen but a hundred and fifteen
remember you add a hundred to the percent okay and then you don't hit
equals what you do is you hit that % BAM there it is easy right okay
seventeen twenty we'll just round it down to seventeen dollars and twenty
cents that's where I'm gonna sell I'm not gonna sell until it hits 17 2000
right and that would be a fifteen approximately fifteen percent profit
okay so once again to repeat that it's real simple you type in two to set your
profit target type in the price where you bought it okay and then you hit x
and then if you want fifteen percent you would add a hundred to it and make it
one fifteen and then you hit that percent sign there it is all right let's
say if if you only want ten percent as your profit target okay let's practice
that one fourteen ninety six that's where you bought it let's say all right
and then x let's add ten plus a hundred so it's 110 and then you don't hit
equals you hit that percent sign if you wanted a ten percent profit target you
would take profits at let's round it to 16 dollars and forty six cents let's say
sixteen forty six alright and you could set a limit order
with your broker to sell at that price all right now let's do the stop-loss
alright let's go back to the stop-loss remember
that should be less than your profit target all right if your profit target
is 15% then your stop-loss should be maybe 5% all right so let's say you want
a 5% stop-loss let's type in the price where you bought it
we're setting a stop-loss now and you could set that with a stoploss order
with your broker by the way you can make it a stop limit order you can make it a
limit order but check with your broker on how to do that because every broker
is a little bit different all right so you type in the price where
you bought it to set your stop loss now let's say you want a 5% stop-loss well
you would take 100 and subtract five okay it's a hundred minus whatever
percent stop-loss you want so a hundred whoops okay so I'm sorry you take 1496
and in your head you can say okay what's a hundred minus five that's 95 okay so
times 95 and then you hit that percent sign there's you stop there's your
stop-loss let's round down to 14 21 okay $14 21 cents I might set a stop loss or
stop limit order with my broker for 14 21 simple as that okay
so let's do it again okay so current price if the times key there okay the
multiply key and then if you want a 5% stop-loss what's a hundred minus 5
that's 95 then hit don't hit equals hit that % 1421 all right let's say I wanted
a I don't know okay well let's say you want a three to one ratio let's say your
profit target is going to be 10% so you know I might set the stop loss at 3%
let's say okay so let's try a 3% stop-loss for this type in the price
where you bought it 1496 again okay at the times now if you
want a 3% stop-loss you take a hundred minus that number a hundred minus three
you could do that probably in your head that's 97 100 minus three okay and then
you hit percent okay so that's a tighter stop-loss that's
three percent which would be let's round it down to $14 and
51 cents okay and you can set a stoploss order or stop limit order with your
broker for 1451 okay so it's really as simple as that all right so you can do
that with your calculator you might also be able to program an excel a Microsoft
Excel spreadsheet to do it for you automatically that might make it quicker
okay and that's a whole other lesson but you can do it that way to make it
quicker and easier for you all right and once again I strongly suggest making
your profit target bigger than your stop-loss it could be a two to one ratio
for example 10% profit target and 5% stop-loss or you can make it a
three-to-one ratio as we mentioned before the example might be 15% profit
target for you know with a 5% stop-loss that'll be a three-to-one ratio all
right but you have to decide what you want to do I cannot tell you what to do
but these are ideas in order to let your winners run and cut your loser is short
and to automate it with your broker with limit orders and stop-loss and stop
limit orders all right so if you found this to be helpful then please give this
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and if you want some help with putting together a trading or investing plan you
can contact me at any time by email my name is David Modell and you can contact
me by email at David Modell at gmail.com thanks a lot I really appreciate it and
I'll talk to you again soon