Initiating a trade without a clear exit strategy is a recipe for disaster. Determine beforehand the price at which you’ll cut your losses if the market moves contrary to expectations. This level is known as a stop-loss and it’s critical to market survival. Limit your losses below 25% of your position size. A stop-loss is wisely placed on the other side of a level at which price has reversed previously, the more times the better.

The converse of a stop loss is the profit target; the level(s) at which profit is taken when price behaves as expected. Profit targets are best-placed slightly before previously significant levels. If price exceeds your expectations by penetrating significant previous levels and maintaining a strong trend thereafter, consider substituting your target(s) for a trailing stop ; this acts as a ratchet on your profits.