What is Take Profit in Forex Trading

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As easy it sounds, taking profit is one of the most difficult parameters and crucial tool in Forex Trading. Have you ever seen a trade go 40 pips your favor and then later comes back to hit your stop loss or break-even. If you don’t find a way of mastering the act of taking profits in the currency markets, you might end up being stagnant and making your brokers rich, paying them spread each time you open a deal. Currency prices fluctuate spontaneously and can be very volatile by nature, profitable traders know this fact.  We all know that there are 2 different types of scenarios in the market namely the ranging and trending markets. You have to device a way to be profitable in both market scenarios as a professional trader. We will be emphasizing what a take profit is and how to use it to our advantage in trading the currency market.

What is take-profit? This is an order used by all financial markets traders to specify the exact rate or number of pips from the current price point they got into the market to close out their current position for a profit. The rate deemed to be the level where the trader wants to take a profit is sometimes referred to as the “take-profit point”. As the name also suggests, take-profit orders are used to lock in profits in the event the currency rate moves in a favorable direction of the trader. In a lame definition, take profit order is an order that closes your trade once it reaches a certain level of profit. Take-Profit orders mean that you are able to take advantage of any profits before the rate falls again and your profit reduces, without constantly monitoring your trades. Take profit orders are also sometimes referred to as limit orders.

Lets say you short a currency pair position and believe the price will decline to a certain level, but are unsure what it will do beyond that level, placing a take-profit order at that point will automatically close out your position allowing you to lock in profit. This way should in case price starts starts to go the opposite direction, you are already out with profit from the deal. However there are several ways take-profits can be applied and implemented in trading the currency markets. Some traders prefer taking profits manually by closing out the position when price gets to a certain level while some prefer automating there take-profits, giving there broker instruction to close their trades. However the best and easiest way is setting trades to be automatically closed when it gets to take-profits level so that there wont be need of constantly monitoring price movements. For example, if a trader buys the EUR/USD at 1.2928 and wants 50 pips in profit, he can enter a T/P order for 1.2978. So when price gets to the level, his trade is being closed automatically.

Now lets go to the deeper side of taking profit as a tool in currency trading. As said earlier in the first paragraph, we got two market scenarios namely the ranging and trending markets. As a professional trader you have to figure out a way to profit from both market situations. Since no one can actually predict a 100% of the time the actual distance price will move after we get into a trade. So what you need to do is to imbibe the using of 2 taking profit parameters in the same trade. Take profit 1 would be conservative in case the market is a ranging mood while take profit 2 will be an aggressive taking of profit should in case the markets is in a trending mood. This way you are able to benefit from both market scenarios as a trader as this helps in the balancing of emotion. Tell me the truth, how would you feel, after you use your brain power analyzing a wonderful signal. You place your trade and aim a 60 pips take profit and then market moves your favor for 40 pips and then rebounds and starts going against you till it hits your break-even or stop loss. On the other way, how would you feel if you aim a 30 pips take profit and you know within you that there’s probability price would go far beyond your 30 pips take profit with this actually happening. These 2 scenarios can trigger your emotions, am telling you FOREX trading is 90% emotion.

This is how i actually place my take profits in trading the Forex markets. For example if i want to open a deal of 2 mini lot size for a particular signal risking $60 for the trade. Lets say i want to use a stop loss of 30 pips, which is 2 lots size times 30 pips stop loss = $60. I split my lots size into two, halving them 1 lot size each at the same entry point. Then i use the same stop loss for each lots size and use two different take profits. The 1st 1 lots size will have a 30 pips take profit and the 2nd 1 lot size will have 60 pips take profit. So if the 1st 1 lot size hits my 30 pips take profit which is most times realistic, i will move the 2nd 1 lot size to break-even. This way if the market doesn’t trend to 60 pips movement, i have already gotten a 30 pips profits. Now generally if the trade doesn’t even move 30 pips my favor from my entry point, i still end up loosing my premeditated $60.

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