The screenshot below shows that the if-then trading plan scenario is unfolding as anticipated. At this point, the price is generating a trade entry signal.
Now, the trader must follow the trading plan rules for stop loss and take profit placement. Most traders spend all their time and energy obsessing about the perfect entry but neglect other parts of their trading strategy.
Stop loss and target placement are very important aspects of a well-rounded trading strategy. Your stop and target directly impact your winrate and the holding time of your trades. Both are vital metrics for a trading strategy.
Although it is not the goal of the article to explain the trade parameter relationship, a short excursion might be helpful at this point: The farther the stop loss from the entry, the harder it is for the price to reach the stop loss level. A closer stop loss, on the other hand, is easier to reach for the price and, therefore, results in a lower winrate. The relationship between take profit placement and winrate is the same: The farther your take profit order is placed away from the entry, the less likely it is for the price to reach the target. At the same time, the holding time of your trades will also go up. The closer the take profit to your entry, the more likely it is for the price to get there, and the shorter the holding time.
The most important aspect when it comes to stop loss and take profit placement is that the trader follows a consistent approach and applies the same rules to each trade. Varying rules from trade to trade will create a lot of inconsistencies in your trading and lead to noise in your trading results. Ideally, all trades should follow the same trading rules.