Take Profit Strategies for Profit Taker & Take Profit Trader Success
Take profit is a key tool for profit takers. Learn how take profit works in forex with examples, pros, and cons for every take profit trader.
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Imagine you are very hungry, you are just about to take a bite, and someone stops you. How will you feel? Frustated.
Well, it is even more frustrating when a similar scenario occurs in trading when you avoid using take profit. Suppose you have predicted the market correctly, the price reaches your desired price, but suddenly falls without letting you withdraw your profit. And you suffered loss.
Right analysis, right prediction, but a little delay in exit can turn the entire trading outcome. In such a scenario, a take-profit forex order can help you. Want to know how?
This blog will teach you the take profit meaning with an example, how to use it, and set the TP level, with pros and cons. So let’s get started.
What is Take Profit in Forex?
Take profit is a powerful risk management tool to lock your profit. It is a forex limit order to close your trade automatically when you achieve the desired profit. In TP trading, this strategy is commonly used to exit positions at a predefined level. Simply, take profit (TP) is an instruction to close your trade when the price reaches the desired level.
If you’re wondering what is TP in trading or TP meaning in trading, it stands for take profit, a preset order used to secure profits in volatile markets. The TP meaning also extends to general finance and trading slang, and in casual use, you might ask, “TP, what does it mean?” or “What does TP mean in text?” in trading, it refers specifically to profit targets.
Understanding what does TP stand for helps new traders avoid confusion. For a take profit trader, using TP correctly with appropriate leverage is key to long-term success. It’s also important to be aware of take profit trader payout rules to ensure your trading plan is aligned with broker terms.
The main purpose of a take-profit order is to safeguard your trades from unfavorable market changes and maximize the gains.
Example
A trader was analyzing the EUR/USD pair, and all the news and market sentiment were showing bullishness for the pair. The pair was trending at 1.1500.
The trader decided to open a long position at 1.1500. The take profit level is 1.1530, and the stop loss level is 1.1490.
The trader used the risk-to-reward ratio of 1:3 and aimed for 30 pips from the trade.
Now, in this case, suppose the prediction went right and the price reached 1.1531 and reversed back to 1.1490.
When Used Take Profit Order
The trader was busy somewhere, hence was unable to close the trade manually when the price reached 1.1531. However, as the trader used the take profit order, the trade will automatically close at a profitable position when the price reaches the desired level.
When Not Placed Take Profit Order
Suppose the trader has not used the order, then instead of a profit, the trader will be closed at a loss at the level of 1.1490.
That’s how take-profit order helps traders in locking their profit when market suddenly changes.
How to Determine Take Profit Level
The most important question for a trader is how to calculate the take-profit level. Well, you can use a number of ways to set the trade TP level. Here are the popular ones:
Risk-to-reward ratio:
Risk-to-reward deals with how much a trader is willing to lose to earn a desired amount. Generally, traders enter and exit positions based on the risk-to-reward ratio.
1:3 is the ideal risk-to-reward ratio for setting the take profit and stop loss levels. Many take-profit traders even go for ratios such as 1:1, 1:1.5, 1:2, and 1:4 ratios.
Pips Target:
Pips target refers to the profit expectation per trade in the forex market. The ideal pips target for setting the take profit level for intraday trade is between 20 to 50 pips.
Technical Analysis Tools:
Traders can even use technical analysis indicators, tools, and concepts for plotting take-profit levels. Like the most popular Average True Range strategy, where traders aim for 1 to 2 times of ATR value as a take profit.
While many traders even use Fibonacci retracements, moving averages, Bollinger bands, and pivot point concepts to identify the take profit.
Candlestick Patterns:
Candlesticks form different chart patterns on a chart, and these patterns can help you determine the take-profit level. Head and shoulder, flags, pennant, wedges, double top and bottom are the top patterns to identify the TP level.
Market Volatility:
The asset volatility or range of price swings is also crucial to determine the take profit. When high volatility, traders should go for wider take profit levels such as 80 or 100 pips, while during low volatility, traders should go for narrower take profit levels such as 20 to 60 pips.
Use Forex Profit Calculator:
Calculating the take-profit level can be a complex task. Well, you can also use free forex profit calculators provided by different brokers to calculate the take profit levels.
Pros of Take Profit Strategy
Profit Protection:
Market changes in seconds. Trends can change quickly, from moving in your favor to against you. A take-profit order can protect you by locking your profit. So your trade will remain unaffected even if market conditions change.
Control on Greed:
The zeal to earn more stops traders from closing their trades. In such cases, instead of making more profit, traders end up losing money. However, when using take profit orders, the trade will automatically close at the preset level.
Automation:
Continuously monitoring the open trades can be difficult, especially for passive traders. Take profit orders enable traders to use automation. Traders can place a trade and do the other work, while the trade will automatically close.
Easy Identification:
As we have discussed above, there are several ways to identify the take-profit levels. Identifying take profit is quite easy with just a basic understanding of the market.
Cons of the Take Profit Strategy
Profit Reduction:
A Take profit can undoubtedly lock your profit, but it can also limit the amount. For example, if the price moves further in your favor, increasing your profit; however, since you have set a limit, your trade was already closed.
Not work well for long-term strategies:
Take profit is great for short-term strategies, such as scalping or day trading. However, for long-term strategies such as position trading, it does not work well.
Slippage and Gaps:
It may possibe that the take profit order executed on different price than your set price due to slippage or gaps.
Wrapping Up
Take Profit is a risk management tool that can lock your potential gain and limit the losses. Traders should always use take profit orders to safeguard their trades from unexpected market change.
However, be vigilant while setting the take profit level, otherwise the whole results gets affected. Also consider the current market conditions and make necessary changes in your trades for maximum output.
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Identify buy or sell opportunities.
Set the Take profit and Stop loss level.
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FAQ
What is a take profit?
Take profit is a powerful risk management tool to close your trade automatically when you achieve the desired profit.
What are an example of a take profit?
A trader decided to open a long position at 1.1500 in EUR/USD. The take profit level is 1.1530, and the stop loss level is 1.1490. The trade will automatically close at TP level if the market moves in traders favor.
When to take profit in forex?
Traders can use Take profit when they are scared of unexpected market change.
What is the best take-profit strategy?
Using a risk to reward of 1:3 or targetting 30 to 60 pips are best take profit strategies.
How many pips should I target daily in forex?
30 to 60 pips target is ideal for intraday traders.
Which indicators help with monthly take-profit decisions?
Traders can use ATR indicators, Fibonacci retracements, moving averages, and Bollinger bands to make take profit decisions.
Should I adjust my take profit for weekly news events?
Yes, considering news, announcements and economic event is a good strategy for setting TP level.
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