Reasonable Ratio for Take-Profit and Stop-Loss

Generally speaking, short-term investors set a stop-loss ratio at 5%, medium-term at 10%, and medium-to-long-term investors can go up to 30%. As for profits, they can be set between 10% and 30%. Partial position reduction can be appropriately applied during the process to ensure the smooth realization of paper profits. Regardless of how the take-profit and stop-loss ratios are set, it is essential to understand that capital preservation comes first, while profit is secondary.

Comparison Between Take-Profit and Stop-Loss

Take-profit and stop-loss are relative concepts, both involving selling transactions that consider the relationship between risk and reward. The primary difference lies in the fact that stop-loss aims to prevent further losses, while take-profit aims to prevent profit shrinkage. Both share the goal of preserving current assets.

Whether taking profits or cutting losses, the key to avoiding mistakes lies in recognizing the market's nature—whether it is a bull or bear market, an upward or downward trend. In a bear market where no clear bottom is visible, all rallies should be treated as rebounds. The core of take-profit is "taking profits when the wind is favorable," while stop-loss is "cutting losses when the wind turns." Once a bull market is established, any pullback should be seen as an opportunity to enter.

Take-profit and stop-loss share the following differences and similarities:

1. Different Psychological Foundations
   Take-profit and stop-loss share many similarities, but their psychological foundations differ. Take-profit is about overcoming greed, while stop-loss is about overcoming the "hope-for-the-best" mentality.

2. Different Control Scopes
   A crucial principle in stock investing is to "cut losses short and let profits run." When executing a stop-loss, it must be decisive to keep losses within a small range. Take-profit, on the other hand, responds to changes in market trends or involves selling after achieving the expected goal. Only when the profit from take-profit exceeds the loss from stop-loss can investors achieve net gains.

3. Different Operational Procedures
   Stop-loss procedures are simpler than take-profit. In most cases, once a stop-loss signal is triggered, it is executed 100%. Take-profit involves multiple factors, such as position building, adding/reducing positions, chip management, and fund management, making it more complex.

4. Shared Purpose
   Superficially, the outcomes of stop-loss and take-profit appear opposite, but their purpose is the same: both are protective mechanisms centered on risk control.

5. Core Focus: Risk vs. Reward
   Both stop-loss and take-profit involve selling when investors believe the risk outweighs the potential reward.

6. Similar Analytical Theories and Methods
   Take-profit and stop-loss are relative. For the same stock sold at the same time and price, one investor may classify it as take-profit, while another may see it as stop-loss. For example, a medium-term investor buys a stock at a low price of $10. When the price rises to $12, a short-term investor buys in. Soon after, the price drops to $11.50, and the market shows signs of downside risk. To mitigate risk, both sell their positions—the former as take-profit, the latter as stop-loss.