The Secret of Take Profit Orders and Why They Are Important

15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

This Forex educational article will be dedicated to reviewing all the aspects ofย Take Profit Orders,ย so I am sure you will enjoy this training guide.

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In this article, we delve into the complexities of Take Profit Orders, a key tool in the arsenal of every successful Forex trader. We will explore how these orders can maximize your trading efficiency and secure profits. This ensures that you are always a step ahead in the fast-paced world of Forex trading.

Letโ€™s start!

The Importance of Take Profit Orders

Take Profit Orders In Forex Trading
Take profit orders in forex trading

It goes without saying that the take profit strategy is just as important as a traderโ€™s stop-loss placement. Both aspects are integral to the reward-to-risk (r:r) ratios. This ratio analyzes and determines the balance between the potential profit and loss of the trade.

The r:r ratio is a vital factor in whether a trader is profitable or not. Moreover, the other item is the win versus loss percentage.

Hereโ€™s the formula:

(r:r multiplied by win %) โ€“ (1 x loss %) = expected result (number should be positive if profitable)

For example, with a 2.0 r:r, 30% win, 50% loss, and 20% break-even score, the trader expects:

(2.0 (r:r) x 30%) โ€“ (1 x 50%) = +0.1 units of profit.

This formula establishes the true measurement of trading success.

The take profit (TP), logically speaking, has great influence and a clear impact on the reward side of the r:r ratio.

Taking profit is a crucial element of trading success because it is the only moment when a trader actually realizes a profit. Any floating or paper profit from an open trade means nothing until the trade is closed and booked.

Only then did we realize the reward and make a profit on that trade! If the win % and r:r are in a good relationship with each other, then the trader can expect the benefits of profit.

Trading Psychology and Take Profit Strategy

Like stop losses, many traders have difficulties taking profits because of their trading psychology. Again, the elements of fear, greed, and impatience strongly influence the game of trading and severely affect trading decisions.

All these emotions have the terrible habit of letting the trader either book profit too soon before the target is reached or not book any or too little profit. Not securing the optimal profit creates a (too) low r:r, thereby harming long-term profitability.

These are the typical and usual consequences of the emotions which can occur during trading:

  1. If traders are too fearful ร  the trade could be closed too soon;
  2. If traders are too impatient ร  the trade could be closed too soon;
  3. If traders are too afraid ร  the trade could be left open too long.

There are ways and methods for Forex traders to improve their trading psychology. The tricks and tools which can be used are:

Ironclad Trading Plan

Trading Plan In Forex
Trading plan in

Having a well-built trading plan with a great take-profit scheme is essential. It not only enhances and maximizes profits but also eases trading psychology.

Taking profits that make sense and are accurate is vital in maintaining confidence in the trade and staying in the trade to the target. Staying into the target is what gives the big reward and maximizes the r:r.

Use Take Profit Levels

Donโ€™t mess around and watch the charts 24/7. Use the take profits option in your trading plan, and you will be pleasantly surprised when you wake up, and your trade has hit your take profit.

Accommodate for Spread and NOT Aiming for the Last Pip

One way to ease the trading psychology with your take-profit plan is to accommodate the spread and not aim for your exact target.

How many times has it happened to all FX traders to aim for a target, the currency pair misses the target by two pips and eventually closes the trade for 30 pips less because they want at least some profit.

Considering the fact that they almost hit their take profit, they should have had more. Or, โ€œOh no, the currency hit their take profit, but the spread was too big.โ€

All Forex traders have gone through this thinking process. Donโ€™t let it happen to you. Accommodate the spread in your take profit, and donโ€™t aim for the exact target. Instead, place your actual take profit a few pips below (for the upside target) and a few pips under (for the downside target) your original profit place.

We all have a plan or an idea of where we want to make a profit. So, instead of aiming for the max, go for the xx pips below. Of course, it will depend on the time frame you use.

If you are trading on the 5-minute chart, accommodate the spread and give an extra pip or two. However, if you use the 4-hour chart, accommodate the spread and give an additional 10-15 pips. One catch is to ensure that your r:r and profitable expectancy are still in the plus.

Use Trailing Stops and Multiple Take Profits

Here, too, the trader must check how using trailing stops and multiple take profits influences the expected profitability of the Forex trader. This is vital. Both tools are great but may not be suitable for your strategy or for your profitability.

A trader must check and backtest the mechanics of these tools. Once completed, these tools can offer great advantages in the realm of trading psychology.

Furthermore, a trailing stop helps soothe the trading psychology because it gives us Forex traders the ease of moving the trade to break even and, later on, even locking profit.

By doing that, Forex traders create more strength and power in staying to a higher target. Having a lot of profit but still not reaching a take profit can be very stressful. All kinds of doom scenarios pop up in the mind.

What if the currency turns on me? What if the markets eat all my profit, which turns into a loss?

I moved my trade-in to break even, but what if the market hits my break-even stop loss and then reverses? Then I might as well close out the trade now!

Many things can speak through the mind. A trailing stop puts some of it to rest.

Multiple take-profit levels have the same effect.ย Hanging on the take profit is not easy. However, if a Forex trader is locking in profits along the way, staying in for the next target becomes much easier when some money has already been pocketed and some profit has been booked.

Feel free to check out our guide onย how to profit from trading.

Great Take-profit Areas

Of course, the logical question in your mind must be: what is a great take-profit area? This Forex article will address that in the following free FX training guide.

Your take profit should subscribe to specific characteristics:

1. Your target is realistic. For example, aiming for 1.98 or 0.74 on the EUR/USD was unrealistic in 2013. Make sure that your take-profit area is within reach.

An Unrealistic Targets Chart Example.
Realistic targets

2. Your target is preferably placed at bigger support and resistance levels, not below or above. For example, when using a day chart, do not put your take profit just above a huge weekly resistance area or just below a massive weekly support area. Instead, move your take profit to accommodate that market structure and make sure that you still have the correct r:r.

3. Use Fibonacci retracements and targets for your take-profit planning, no matter which time frame. These Fib levels do a great job of optimizing reward and are truly well respected by the Forex marketplace.

Fibonacci Retracement Targets Example.
Fibonacci retracements and targets

4. Preferably avoid aiming for a fixed amount of pips unless you have backtested the results thoroughly.

5. Use major levels in the market. By using these major levels, you ensure that you get the best exit price possible.

Realistic Targets To Take Profit.
Realistic target take profit

6. Try to find the confluence. A Forex trader has many tools and techniques at their disposal. Make sure to look for confluence when making a trading plan. That way, you are placing your take profit at the best spot.

Timeframe and Take Profits (TP)

Realizing howย multiple time frame analysisย can harm profit-taking planning and capabilities is essential. For those Forex traders who use a 1-time frame for their analysis, entries, and exits, you can skip this section without worry.

However, this is a crucial warning and heads-up for Forex traders who use more time frames.

  1. If you enter a trade on a specific time frame, make sure to plan your take profit on at least the same, if not one, higher time frame. This process helps ensure the trader keeps focusing on the bigger picture.
  2. Once a trader has entered the trade, stay on the same or one higher time frame to monitor the trade. That will take the nervousness out of the trading.
  3. Most importantly, do not zoom into a lower time frame after you have entered the trade! That is the worst thing that could happen because the likelihood of a trader changing the trade plan halfway through the setup is very high when a trader zooms in and starts seeing reversal signs on a lower time frame.

Time Factor and Take Profits

Time Factor In Forex Trading
Time factor in forex trading

Last but not least, please realize that it usually takes long before the price actually reaches your take profit area. Typically, this is not a fast process!

Sometimes, when Forex traders enter a trade, they have the feeling that their trade should hit their target quickly and panic if their trade does not materialize soon.

If you have a good stop-loss placement, then that fear is not needed. Of course, there is always an exception. For example, trading a big fundamental news announcement such as an NFP could be a very important factor.

Usually speaking, though, it takes time before the currency reaches the take profit level. Traders must give a trade time and space before they can expect to book their profits.

When backtesting your strategy and your currency, make sure to note down how long your trade setup actually took before it developed into a winner. Scrolling through a chart and seeing the strategy hit your take profit level is easy.

One of the problems is that when practicing a strategy in such a way, the time factor of the trade development is overlooked. It only takes a few minutes to click forward days or price data. However, in real life, every candle IS an actual hour.

A person can do a ton of thinking in an hour, let alone during an entire day. Each Forex trader must know that the time factor is part of the process and that patience is vital.

Conclusion

As we conclude, remember that mastering Take Profit Orders is a journey, not a destination. This article has armed you with knowledge and strategies to enhance your Forex trading experience.

Embrace these tools, apply them judiciously, and watch as they transform your approach to trading, leading you toward more consistent and rewarding outcomes.

Will this FX educational article help you make a profit? Please leave a note down below!

Thank you for reading!

Please leave a comment below if you have any questions about how to take profits in trading.

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15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

5 Comments

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    • Hi Jun!
      Thanks for the feedback. We really appreciate your comments, so big thank you for that ๐Ÿ™‚
      On top of that, I am also happy to read that the article could help you in improving your take profit strategy.
      If you have any questions, now or in the future, on this topic (or other topics too), please donโ€™t hesitate to ask those in the comment sections on any of my articles.
      Have a great weekend! Chris

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