Determining the Ideal Take Profit in Forex

Deciding on a take profit in forex trading should not solely rely on intuition. It requires a proper and logical strategy for traders to achieve optimal profits. Relying solely on intuition may bring luck in some instances, but at other times, emotional pressure can lead to losses due to miscalculations. Therefore, achieving consistent profits requires more than just guesswork.

Are You Deciding Take Profit Based on Emotion or Logic?

Many traders fall into the trap of closing positions due to emotional pressure, not following predetermined rules in their trading plans, or even neglecting to set a take profit altogether. Consequently, the profits that should have been earned are significantly lower than expected. Disciplined traders who adhere to their trading plans by setting take profit levels should be able to achieve profits according to the predetermined risk/reward ratio, without hesitation or panic.

Several Ways to Determine Take Profit:

1. Determining Take Profit in Trending Market Conditions

In a strong trending market, significant profits can be made by using a trailing stop. For example, on a daily chart of AUD/USD with the EMA 8 daily and EMA 21 daily serving as support levels in an uptrend market condition.

2. Determining Take Profit in Ranging Market Conditions (Sideways)

Sideways markets are characterized by upper and lower ranges. You can determine entry and exit levels by using pin bar formations that occur at the range boundaries. For example, on a daily chart of GBP/USD.

3. Using Risk/Reward Ratio

Although no one can predict market price movements with certainty, using a trailing stop is an appropriate strategy in strong trending market conditions. The target profit level or take profit is usually determined after establishing the loss limit with a stop loss, based on a pre-planned risk/reward ratio.

No one can predict market price movements, including professional traders. What matters is having faith in the trading system and the predetermined risk/reward ratio. Let the market move as it will, and approach it with tested trading strategies and money management techniques. Traders must continually improve their ability to interpret price movement probabilities in various market conditions. If traders open positions too frequently or set take profits haphazardly, their accounts may suffer losses, regardless of how complex their trading strategies may be.

Share: