What Is A Take Profit Order explained by professional forex trading experts the “ForexSQ” FX trading team.

What Is A Take Profit Order

A take profit order is an order that closes your trade once it reaches a certain level of profit. When your take profit order is hit on a trade, the trade is closed at the current market value. Take profit orders are also sometimes referred to as limit orders.

Why Is It Used Strategically?

A take profit order is often bundled with a stop loss which helps define your risk:reward.

A risk to reward an appropriate trade size can go further than your trading strategy in determining how successful you are in the markets. Therefore, a take profit order allows you to limit your risk or exposure to the market by exiting your trade as soon as the market prints a favorable price for you and not staying in any longer.

Often, the shorter-term a trader’s strategy is the better a take profit order is for that trader. One popular strategy is to use pivot points or average true range to help define an appropriate take profit order level. When a shorter-term trader does not have a take profit target, they may quickly see the gains they hope to realize slip away by not having a good understanding of when to exit.

My preferred strategy for an intraday take profit target is to use the average true range plus an overnight extreme. Another preferred method is a daily or weekly pivot point.

These levels are often relative extremes and if the market hits this level, retracement can happen and exiting at these levels often provide a favorable exit.

Should You Use a Take Profit Order?

While every trader is different in terms of risk profile and time in trade, there are key questions you can ask to determine whether or not you should use a take profit order.

First, if you are a swinger long term trader, you are likely looking to take advantage of longer-term trends. Trend traders who use take profit targets are often frustrated when they’ve recognized a good trend and get out very early. This exact scenario happened to me in fall of 2014 when I was selling the Japanese yen and had multiple take profit targets right before 1000 pip move in my trades favor that I did not realize because of a take profit order.

While the market is ranging, take profit orders are often preferred. This is because resistance levels often hold back price advances and support levels often hold up price drops. Therefore, if you are buying low in price moves up to resistance in a range bound market, a take profit order at an elevated price is desirable before the market retraces closer to or below your entry point.

What Indicator Can Help You Decide When To Use a Take Profit Order?

There are many indicators that can help you see when a trend is in play such as a moving average or even the relative strength index. However, one hopeful indicator that new traders enjoy is the average directional index or ADX. The ADX helps you to see on a scale of 0 to 100 how aggressively a Paris trending.

Levels above 30 indicate an aggressively trending pair and would favor not using a take profit order.

ADX readings below 30 indicate that the market is ranging and take profit orders are likely a better tool than sitting on a trade and trying to time the exit based on what “feels right”.

What Is A Take Profit Order Conclusion

For more information about currency trading brokers visit forex brokers comparison website, Tip foreign exchange trading experts please by share this article about What Is A Take Profit Order.

In this article