In what, from a sentiment point of view, Stop Loss and Take profit are fundamentally different?
The difference, in my opinion, lies in the fact that I WANT the Take Profit to be reached, while I DO NOT WANT that Stop Loss is reached.
Ok, that's not a breaktrough, I know...
Though, there is an important difference regarding the psichology that I use when I put pending orders, and the psichology that stays beneath the other traders behavior.
So: if I want to use this substantial psychological difference to trade as a winner, how should I do?
Let me explain with an example: if I do not want anyone to find out something, the easiest and most effective way is to put it where no one would ever think to look. A good choice would be a completely illogical place. Do you remember The Purloined Letter, the short tale written by E.A Poe? Something like that, I suppose.
On the other side, if I want something to be found, I will put it where everyone thinks that it might reasonably be.
So, that's the idea about how I think we should reconsider the most common Stop Loss and Take Profit positioning methods:
1) put the Take Profit where everyone puts it. (on a support, a resistance, a fibo retracement, a crossing of moving averages ... the important thing is that the place we choose is CLEARLY VISIBLE and IDENTIFIABLE by almost any technical trader, no matter how professional or expert he is).
2) put the Stop Loss where NO ONE ELSE would put it. (Away from what is listed above, in the most senseless place, so that you might be sure that you're the only one to have positioned a Stop there. This does not, obviously, mean that your Stop Losses are huge, hundreds of pips away, nor even ridiculously short. What is important, is that they always should be larger than what everyone would think. This way, even if the trend comes against you, maybe the mass of Stop Losses which would be cleared away, just ahead of yours, will have the strength to invert the trend.
I must say that, unconsciously, I had some time used this idea. And I must also say that in most cases this was a good choice, where the classic Stop "a few pips from swing," or "a few pips below the support," would have been disastrous.
Any comments about this idea will be greatly appreciated! :-)