Take-profit is a pending order by which you can automatically close a profitable trade.
Many traders questioned the suitability of the take-profit. It allows you to safely leave a transaction in the market unattended, but at the same time limits the trader’s potential profit.
It’s up to you to trade with it or leave it, but if you are starting out, you should try it.
For us, it has a psychological meaning – it systematizes trade, not allowing emotions (greed or hope) to prevail.
So, in this guide, we’ll reveal what the rules for setting a take-profit are.
Rules for setting take-profit
1. By time
This method is based on the concept of session trading. If the deal opens in the middle of the European session, then it is likely that by its end, business activity will decline. Some trading systems provide a fixed output, for example, after 2 hours (decay time of the fundamental driver), etc.
2. By key levels
This classic method based on psychology. There is no guarantee that a fundamental level will be broken, so putting a take-profit above does not make sense. But it’s better to place an order several points lower so as not to fall into the trap of market makers. Key levels can include psychological marks, Fibonacci, or round levels.
3. By Confluence
If there are multiple trading signals on the chart, these levels will be the most accurate place to set a take-profit.
4. By volatility
Some calculators allow you to determine the instrument’s average volatility for a fixed period – day, hour, etc.
For example, if the pair’s volatility is 80 points within a day and the pair has already passed 10 points since the beginning of the session, more than 70 points of further progress should not be expected.
5. At extreme
If the price fixed an extremum and rolled back after correction, it is likely that after repeating the movement, it will again reach the same level.
6. On the oscillators
Stochastic, RSI show overbought and oversold zones, allowing you to assess the moment of their achievement.
7. On the boundaries of channel indicators
According to theory, the price is 80% of the time in the channel, each returning to its median value. If it opens at the time of rebound from the channel’s border, you should set a take-profit at the level opposite to its channel.
8. According to stop-loss
This is a mathematical approach, involving the ratio of the length of take-profit and stop-loss to get a positive expectation from trading. The take-profit is usually 1.5-2 times longer than the stop-loss.
9. According to the previous wave of the trend
Assuming a repetition of a wave of the same strength, the trader can estimate the distance from its beginning to the extremum and set a take-profit at the appropriate distance.
This psychological method appropriates to the preferences of the trader. For example, setting take-profits at 20 points, regardless of trend strength.
Take-profit is a great way to cut down losses if you are uncertain about the market’s position. Moreover, take-profit can be moved and deleted, closing deals manually.
New to Forex trading? Don’t miss these beginner guides from FXCC.