The forex market moves fast — and so do emotions.
It can be difficult to separate your emotions from forex trading entirely; as everyone gets a little stressed when a trade is going poorly and a little too aggressive when a trade is going well. This is human nature. Your trading plan can quite easily be disrupted and turn into a battle of greed versus loss.
This is why take profit levels are vital. Take profit levels are often incorporated into forex strategies in order to defeat the natural human inclination to allow a trade to ride when it is performing well. Many traders will feel as though it’s best to wait while a trade continues to take the most amount of profit possible. But this can also lead to a situation in which profit is actually lost because of a sudden downturn.
Try reading: When to Demo Trading to a Live Account
Here’s everything you need to know about how take profit levels can help…
Setting Up Different Take Profit Levels
You may know what a “take profit” is, but what is a take profit level?
When you set a take profit, you set a specific price at which the trade should close. This is used to capture your profit automatically the second that the price hits that number. A take profit level is the price level at which a take profit action occurs. Take profit levels are multiple, staggered levels that are used to control a trade.
A single currency trade may have multiple take profit levels — usually done by creating multiple trades in the same direction. For instance, there may be a take profit action set at every increase at 20 pip intervals. These take profits are designed to capture profit as quickly and reliably as possible. The first take profit level will generally be initiated quickly, making the trade profitable early on.
Take profits are generally mixed with stop losses as well, so that there is more room for profit and less room for loss. All of this creates a reliable trade management strategy that completely removes emotion from the equation.
The Emotional Benefits in your Trading
Forex strategies need to be consistent if they are to be profitable. That being said, every trader occasionally has an emotional moment, during which they may either close a trade early or let it ride.
If you have an inconsistent trading strategy, there’s no way to improve upon it. Though you may be able to make money short-term, you won’t know what portion of your strategy is actually working or not. Eventually you will find that your strategy turns; it’s impossible to maintain consistent results with inconsistent trading.
Take profit levels completely remove the potential for an emotional impact on trading. Rather than having to make a snap decision regarding when you will take profit on a trade, it will already be set for you — all you need to do is avoid deviating from the plan and changing the trade itself. In fact, with the appropriate take profit and stop loss levels set, you don’t even need to manage your trading; you simply need to initiate new trades and work towards an even more profitable trading strategy.
The Market Benefit of Take Profit Levels
Take profit levels aren’t just about your emotional status. Some traders aren’t emotional and are more than able to control themselves when they’re dealing with the forex market. But there are some things that are simply beyond human ability.
Tracking the forex market in real-time can be one of these things.
The forex market changes very quickly and this can be even more true if you’re trading a currency pair during a time of particularly high volatility. It’s possible that a level of profit could be hit upon very suddenly and then lost entirely thereafter; in other words, the market can spike suddenly and then retreat.
If you’re relying upon your own reflexes, you’ll need to watch the market constantly and you’ll have to be able to react very quickly to the market change. You could potentially miss your chance and a profitable trade could become a losing one.
This can be avoided through the use of a take profit of course.
A take profit will capture your profit even if the take profit amount is only held for a brief moment. You won’t need to watch the market or your account 24/7; instead you’ll be able to trust that the trade will close exactly when you want it to.
A take profit level also enables you to use far more complex strategies. It can be impossible to track multiple currency pairs and multiple take profit levels, which means that you may have to take profit only once if you’re relying on yourself to close the trade.
By setting automated take profit levels, you streamline the forex marketing monitoring process and take the burden off of yourself.
Identifying Your Take Profit Levels
How do you determine which take profit levels you use?
It differs for each strategy. Most take profit levels are staggered, with three to four take profit levels focused on the lower limit and upper limit of what you believe the currency pair will hit. But the analysis that is generally used to determine a take profit can be quite complex, based on a variety of key performance indicators and strategies.
For instance, in a support and resistance strategy, the take profit may be set a little above the current market price, a little under the resistance price, and in between. This would secure profit just as the trade moved upwards and as the trade met its resistance price — in addition to the area between these two. Even if the trade never met its resistance price, at least two of the take profits may still be initiated. The stop loss would then be set to still ensure a profitable trade even in the event that this occurred.
See our guide on choosing a trading strategy for help.
Of course, it’s very difficult for traders — both new and accomplished — to determine their own take profit levels, even if they are very knowledgeable about analysis and strategy.
This is where forex trading signals often come in…
Live forex trading signals tell the trader exactly how to initiate their trade, including which take profit levels and stop loss levels they should use. These signals use a significant amount of analysis and past market behavior to determine the way that the currency trade will likely go. They are able to use their algorithms to find the most profitable trades, which includes both take profit levels and stop losses.
For many traders, live forex signals are the best way to trade without having to invest a significant amount of time into the process.
To put it simple, Use Take Profit Levels!
Regardless of what technical analysis and what strategy a trader may be using, take profit levels are an intelligent way to trade.
A take profit level ensures that the investor will be able to capture profit according to their plan. Many trading signals incorporate take profits for just this reason. Take profit levels free up an investor to step away from the computer and to trust that their trades are being closed as they should be.
Avoid the temptation of emotional and irrational trading by not engaging in the battle of greed versus loss. Start using take profit levels in your trading from today.