While trading on Forex, many traders don’t use take profit, preferring to close orders manually or to wait, while the market closes it by itself with the stop out.
To be sure and to get profit even in force majeure situations, take profit exists.
However, take profit is quite a useful instrument, especially if the trader due to some reasons does not have the ability to constantly monitor the open transaction. In this case take profit is very useful.
How Does It Work
Imagine the situation: trader forecasts the price growth of the GBP/USD pair. He is right in his forecast, price is increasing and trader is waiting for some level of profit. But suddenly routine situation happens and something distracts the trader: the Internet connection is lost, computer breaks down or there is a blackout, – everything can happen. In such cases trader has no ability to control process by himself. The price increases on several points, pushes away from the resistance level and goes down.
One important circumstance is that the order with take profit will be closed even when the trading terminal is offline.
When the trader gets the ability to check his open order, he finds out, that the price has moved in another direction and order has been closed with the losses. Such situation may take place any moment.
To be sure and to get profit even in force majeure situations, take profit exists.
What Is Take Profit
Take profit is a financial instrument, that allows fixing the profit. If trader uses take profit, he always knows that the order will close automatically, as soon as the price reaches the desired value. For example, even if you stay in front of the monitor and track the price movements carefully, you do not always have the opportunity to close the order. Such situation may take place on the market during the news release.
One more important circumstance is that the order with take profit will be closed even when the trading terminal is offline.
Take profit is being placed the following way. In the MT4 terminal, on the instrument panel there is a tab "New order". In the appeared window you have to choose the value of the take profit. Value placing is based on the trader's forecast and, as soon as the indicated price is reached, order is closed with the profit.
If for some reasons trader forgets to place take profit or wants to change its options, on the bottom panel of MT4 you should make a double click on the line with the opened order.
- In case of the buy order, take profit is placed higher, than the price.
- In case of sell order – lower.
There is no way you will place it wrong. In case of wrong price placing, MetaTrader will show you the error.
How to Determine Take Profit Size
There are many ways for the take profit size to be determined. Mostly, you have to pay attention to the market conditions, the current situation on it and your trading strategy.
-
Local maximum and minimum, on which the price reversal has happened. This method is considered to be the most simple and has a good reputation. While increasing, price rarely exceeds the maximum, usually the price reversal happens and the reverse motion begins. So, in case of buy order, you should place take profit near the maximum. In case of sell order, you need to pay attention on the minimum and to place take profit on its borders. Using such method, it’s reasonable to increase the size of take profit on 5–10 points depending on the situation.
-
Fibonacci Pivot Points. In this case the guides are the rollback levels from the previous movement, which act as original resistance and support lines.
-
Depending on the level of expected losses. Profit always has to be higher than the possible losses in 1.5 or better in 2 or 3 times. In pursuance of such calculating, take profit has to be larger than stop loss value.
- Trailing stop. If the price moves in the required direction, stop loss changes after it. It’s useful for those, who have no ability to track the changes of quotations. After opening the order, trader can place the trailing stop. In this case, he has to indicate, on what distance from the price it has to move, then trader can just start doing something else and not stay near the monitor to track the trading process. Upon some time, the order will close by itself. The disadvantage is that the fixed take profit often brings greater profit.
- Fibonacci time zones. Is usually used by the fans of long term forecasts, who prefer placing minimal number of orders and keeping them open for a long time.
- Graphic figures, also they can be named models or patterns. Distinguish figures of the reversal (head and shoulders, double top, double bottom) and of the continue (triangle, flag, rising wedge).
In each specific case the position of the take profit placing is explicit, stipulated and depends only on the figure size.
We want to draw particular attention to one important fact. In the moment when price almost reaches take profit, it is better not to change the level of it in order to get higher profits. While placing take profit, most traders use certain factors, which indicate precisely on this level.
If you use take profit constantly, it disciplines you. It’s hard to check out the strategy, if the trader always takes risks. The size of the take profit has to be analyzed and placed and under any circumstances it should not be changed after the order is opened, if it is changed, the trader risks with own funds.
by , 2017.12.14