Take profit (TP) and cut loss (CL) are 2 terms that you hear every day when you trade, both in the stock market and forex. Actually, what is take profit and cut loss? Simply put:
- Take profit: selling shares to realize a profit or profit. (selling the stock at a higher price than the purchase price).
- Cut loss: selling shares with the aim of limiting losses, so that losses do not swell (selling shares lower than the purchase price).
How to illustrate take profit and cut loss? let's look at the illustration below:
ILLUSTRATION OF TAKE PROFIT
Andi bought EXCL shares at a price of RP3,500 per share. Andi wants to realize a profit (selling shares) at a price of Rp3,750. When the share price reached Rp3,750, Andi sold his shares. Then Andi gets a profit, which is Rp. 3,750 - Rp. 3,500 = Rp. 250 per share.
ILLUSTRATION CUT LOSS
Arga bought ASII's shares at a price of RP6,000 per share. Arga wants to realize a profit (selling shares) at a price of Rp6,400. However, the stock price turned out to be not as expected. Therefore, Arga determined that if the price fell again to Rp5,900, a cut loss would be made. Turns out, it's true, the price dropped to RP5,900. Finally, Arga made a cut loss at the price of Rp5,900. So, Arga's loss is Rp. 6,000 - Rp. 5,900 = Rp. 100.
Arga decided to cut the loss at a price of Rp. 5,900 with the aim of limiting the loss so that it was not bigger. According to the analysis, ASII will fall again below Rp5,900 if it is unable to rise above Rp5,900. So Arga did a cut loss at the price of IDR 5,900.
So, that's the difference between take profit and cut loss. Cut loss is done when the stock price you predict turns out to be wrong, so you sell the stock at a loss. The goal is to protect your funds from even greater losses from the decline in the stock price.
Your question: "So how do you determine the right cut loss and take profit?"
I can't give you the cut loss and take profit formulas, because they are very subjective and each stock has different historical chart movements and patterns. However, if I determine the TP and CL, it must be based on the support and resistance lines that are most often crossed, as well as using the lowest support and peak resistance lines. To determine the cut loss and take profit limits, the point is: you have to study a lot about the pattern of stock price movements in the market.
