What is a Take Profit Target?
A Take Profit Target is the price level you set on a Forex trade that closes your the trade with profit automatically when that price is reached. Take Profit is sometimes referred to as the limit order, or abbreviated as the T/P. The Take Profit Target is one of the most important aspects of Forex trading.
You should determine a Take Profit Target that will give you advantage on two fronts; it presents you with a realistic profit objective and it should also be a sensible risk to reward ratio. Setting a Stop Loss as well as a Take Profit Target allows you to prepare in advance just how much you risk in the Forex trade and your profit potential.
Three basic methods of setting Take Profit Target.
There are many ideas and strategies behind where to set your Take Profit, but we will discuss three basic methods.
1. Using resistance to trap your profit:
Resistance is a price level where the price of a currency pair stopped advancing and begins to decline. Visually, picture a jar with a lid. The level of resistance is the lid, and unlesls the contents of the jar have much pressure or quantity, it is hard to break past the level of the lid. The resistance level is a very good place to set your Take Profit Target level if you are in a long trade.
The drawback of placing a Take Profit target at a level of resistance is that you may close the trade with profit prematurely if the market has enough momentum to break the level of resistance.
2. Using support to trap your profit:
Support is a price level where the price of a currency pair has stopped declining and begins to ascend. Visually, picture digging in the ground and having to stop digging because you reached a cement floor. The level of support is the cement floor, and it is hard to break that floor unless you exert enough pressure and crack the floor below. The support level is a very good place to set your Take Profit target if you are in a short trade.
The drawback of placing a Take Profit target at a level of support is that you may close the trade with profit prematurely if the market has enough momentum to break the level of resistance.
3. Forex Signals:
All of the Forex Signals provided by ForexSignal.com include 3 optional Take Profit prices and you can aim for any of the targets. Target 1 is typically 25-30 pips, Target 2 is typically 35-40 pips and Target 3 is usually 60 pips.
There are different ways you can use these levels.
One way is to just take one trade and aim for one of the targets of your choice. Or you can aim for Target 3, and as you receive each notification to your email or phone you can partially close the trade at each target.
Another method is to split your lot size into 3 smaller positions and take the trade 3 times, each trade aiming for each one of the targets. Be sure to change your stop loss when we sent you a notification to change the stop.
It is a very smart move to trap your profits. The best way to do achieve this is for you to set a Take Profit Target whenever you trade Forex. The best way to practice setting your Take Profit is to open a demo Forex trading account, offered for free by Forex brokers. Open a demo account for free with one of our favorite Forex brokers; AvaTrade.