Liquidation Plan

The liquidation plan is a strategy for controlling risks in trading. It refers to pre-setting an exit price from the market after opening a position to avoid excessive losses or missed profit opportunities due to market fluctuations. The position closing plan can be divided into stop loss closing and stop profit closing. The former automatically closes the position when the price reaches a certain loss level, and the latter automatically closes the position when the price reaches a certain profit level.

Why do you need a liquidation plan?

The purpose of the position closing plan is to protect funds and obtain profits. It can help traders:

Avoid making irrational decisions influenced by emotions, such as greed, panic, obsession, etc.;

Reduce risks caused by market emergencies or technical failures, such as news announcements, black swan events, system crashes, etc.;

Improve transaction efficiency and save time, no need to always pay attention to market changes or manual operations;

Optimize trading performance and stable returns, and achieve long-term profits by setting a reasonable risk-return ratio and winning rate.

How to make a liquidation plan?

When formulating a position closing plan, you need to consider the following elements:

Trading Goals: What do you want to achieve through trading? Is it to make quick profits in the short term, or to accumulate stable income in the long term? Is your trading style more conservative or aggressive? What is your trading time frame? These factors will affect the way and parameters you set up your closing plan.

Market Analysis: How do you determine market trends and fluctuations? What technical indicators or fundamental factors do you use to support your trading decisions? How do you determine the timing and price of entry and exit? These factors will affect the basis and criteria for setting your closing plan.

Risk Management: How much risk are you willing to take? How much capital do you allocate per trade? What is your risk-reward ratio per trade? How do you control your losses and protect your profits? These factors will affect the value and range of your closing plan.

Based on the above elements, you can develop a closing plan that suits you and execute it every time you open a position. Generally speaking, a good position closing plan should comply with the following principles:

Simple and easy to implement: The closing plan should be clear and unambiguous, not too complicated or vague to avoid confusion or errors.

Flexible adjustment: The liquidation plan should be flexible and can be appropriately adjusted according to market changes or transaction results to adapt to different situations.

Strict implementation: The closing plan should be strict. Once it is formulated, it should not be changed or violated at will, so as not to affect the effect or confidence of the transaction.

Example of closing plan

The following is an example of a position closing plan for reference only. You can modify or optimize it according to your own situation.

Trading goal: long-term accumulation of stable income, preferring a conservative style, and the trading time frame is the daily line.

Market analysis: Use trend lines and moving averages to determine the market's trend and support and resistance, use MACD and RSI to determine the market's momentum and overbought and oversold, and use Candlestick chart patterns and price behavior to determine market turning points and breakthroughs.

Enter when the trend is clear and momentum is strong, and exit when the price approaches support or resistance or signals a reversal.

Risk management: Allocate 1% of the funds for each transaction, and the risk-to-return ratio for each transaction is 1:2, that is, the stop loss is set to 1% of the opening price, and the take profit is set to 2% of the opening price. Move the stop loss to the opening price when the price reaches half of the take profit level to protect capital. Move the take profit to the next support and resistance level when the price reaches the take profit level to pursue higher profits.