Take Profit: How to Exit the Market Successfully
There are different types of orders and take profit is one of them. Forex traders place take profit orders to save their time and avoid having to monitor the market regularly. Nevertheless, it’s crucial to know how to place the order correctly. Would you like to learn how to do it? Read on.
Take Profit: Precise Explanation
Take profit is a command sent to a broker via a trading platform to close the opened position at a certain level with a profit. The order is filled if only the price touches the determined level. Moreover, the order is triggered automatically.
Take profit is a command sent to a broker via a trading platform to close the opened position at a certain level with a profit.
It’s worth mentioning that some experts provide several take profit points when giving trading recommendations. It means that you can place more than one take profit level if the trade keeps moving in your favor.
Moreover, take profit orders are acceptable for any security, not only currencies but also stocks.
Should You Use It?
Although some traders forget to set take profit orders, we recommend using them. Take profit orders are more efficient for long-term trades.
Let’s consider an example. Imagine you opened a long position of the EUR/USD pair on August 1 (1) and planned to hold it for several days. As you can see on the chart, since August 5 (2), the price started consolidating and later declined, as you were trading on the swing in the downtrend.
If you placed the take profit order at 1.12, where the trendline lies or at 1.1237 where the resistance could be set, according to two previous points where the pair rebounded, you would save your potential profit and exit the market before it bounced.
If you avoid a take profit order, there are risks and if you just miss the reversal point you could lose all of your gains.
If you don’t place the take profit order, there is a high risk you will lose everything you gained. To sum up, a take profit order allows you to minimize the risks of money-loss.
It seems that take profit order is a perfect way to exit the market. But why don’t some investors use them? Let’s consider the benefits and limitations.
Take Profit: Use or Not
Nothing is perfect and take profit orders have disadvantages as any other market tool. Let’s consider the benefits and limitations that will help you decide whether or not to use take profit orders.
|Prevent losses. As we showed in the example above, when you set a take profit order, you risk missing the reversal point declines. Taking profit guarantees an automatic market exit.||Too wide. Not all traders know how to place take profit wisely. If it’s too wide, the price may turn around before it reaches the take profit level. Thus, your trade won’t be closed automatically, and you will lose money.|
|Save your time. This advantage relates to the previous one. You don’t have to monitor the market constantly to catch the moment when it turns against you.||Too short. If you place an order too close to the entry level, the odds are your profit will be too small.|
|No doubts. If you’ve ever traded, you know the feeling of greed. People are emotional. When you don’t have a predetermined exit point, the constant willingness to increase your profit may work against you.||Not for all. If you are a scalper or trade on high volatility, take profit won’t work for you. Usually, such traders close their positions according to market conditions. Moreover, in such cases, it’s almost impossible to predict the exit point in advance.|
|Automatic. The order is executed immediately after you place it on a trading platform.|
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