Lesson 35 – Take-Profit, A Guide for Forex Traders
Take-Profit. What is it?
Taking profit is pretty much our target for every trade we make. The ‘take-profit’ is the level we set out automatic exit trade order, to close our positions for a profit.
Like how we approach setting a stop-loss, setting our take-profit should not be randomized but at a calculated set place.
People who first start trading often are under the wrong impression that we should always aim at a specific percentage of profit or a particular price level.
Setting your take-profit at such arbitrary levels without proper technical analysis will almost guarantee that you’re not extracting as much profit as you potentially could.
Why is setting take-profits correctly important?
Pretty much all traders have issues with taking profits at a correct time or level, making them lose out on potential profits that they could have had.
This is because they were either too fearful and left too much on the table, or too greedy and the wave that they were riding crashed down, leaving them with meager profits.
Even for the best traders in the world, this is a really stressful task.
Becoming a master of taking profits at the correct levels is absolutely necessary for succeeding in forex trading.
If you become too unrealistic and optimistic about your profit taking levels, your potential wins will become losses. On the other end, if you get out too soon, you will have only scraped the surface of the money you could have had.
Where should we set our take-profit levels?
There are many different ways you can set your take-profit levels. Here are some of the most common (but ways you can use:
- RSI overbought/oversold levels
- RSI divergences
- MACD crossovers
- Using the key support and resistance levels
- Using your predetermined risk-reward ratio (we’ll cover this in the next lesson)
When setting your take-profit levels, keep an eye out for obvious obstacles that would hinder the success of your trade.
For example, if you are in a BUY position, a resistance level would be an obvious obstacle, so don’t place your take-profit sell order above it. It will be unlikely to reach it.
So, place your take-profit levels at key prices in the market that are informed and researched, in order to avoid being too greedy or too cautious in having to close positions in the moment while the trade is active.
Multiple take profit zones
Another common method is to create multiple incremental profit orders by spreading out partial take-profit orders over two or more levels.
This helps in the sense that once your trade reaches the first take-profit level, your trade will still remain profitable even if the price suddenly dips down below your entry point.
Since this incrementally secures profit bit by bit, allowing for fluctuations, it helps the mental stress placed on forex traders.
It is often therefore used for swing trading that targets large ‘swinging’ pip movements that can occur over multiple days. It then is reasonable to set multiple take-profit order and different levels to secure profit over those days as things fluctuate.
That was it for this lesson! In the next lesson, we’ll go over risk-reward ratios and how they help to inform us how to better place our take-profit orders. See you there!