A Take Profit order is a type of order set together with Market Execution or Pending orders. It...
A Take Profit order is a type of order set together with Market Execution or Pending orders. It is used to fix profits once the price level reaches a predefined value. Take Profit orders are executed automatically.
This review deals with Take Profit orders and teaches you to place them on different platforms, use them in various trading systems, and calculate their levels.
There is Take Profit definition: Take Profit (ТР) is a pending order that directs the broker to close a trade once the asset's price becomes equal to the value preset by the trader. Let me explain the Take Profit meaning:
It works as follows: The trader places an order to buy and buys an asset at its current price on the trading platform. He also sets a TP value at the current price + 20 points in the order.
Once the price level reaches that value, the trade will be closed automatically. A TP order remains active until the price reaches the preset value.
The trader can place TP orders in the following situations: To open a trade if the trader is absent. For example, you suppose the price will reach a necessary level at night, but it might then have retraced to the previous level by the morning.
So, you set Take Profit and go to bed. The trade will be closed automatically upon reaching the predetermined level. In the morning, you have your trade closed with profits.
To close a trade upon touching the level. This technique is often used in scalping, where even milliseconds matter. The trader supposes that the price line will reach a certain level and then pull back.
He or she understands that closing a position manually might take too much time, and the price might go in the opposite direction too quickly upon touching the level.
So, a Take Profit order is set to exit the market with the most profit, and a position is closed automatically once the price touches the predefined level.
To observe a risk management policy and trading psychology. Emotions and greed can urge traders to keep profitable trades in the market longer in the hope of higher profits. As a result, the trader misses a price reversal moment and closes the trade at a less attractive price.
Besides missed profits, some traders feel bad about that. Take Profit orders do cut down prospective earnings, but they also protect you against reversal risks and reduce tension.
In the Forex market, Take Profit orders are always placed above the Bid price for long positions and below the Ask price for short positions. Attention! There are two prices in the market: Bid — sell price, and Ask — buy price.
The Ask price is always higher than the Bid price. Candlesticks are formed as follows:
So, Min Ask will equal Low plus spreads, and Max Ask will equal High plus spreads.
How Take Profit works. Take-Profit Order Example
A TP market order can work automatically at the preset level without the trader's participation. How does Take Profit work?
Here’s an example. Open the BTCUSD's chart. As our goal is to see a take-profit order example, we'll take a short M5 time frame. Open the order window and set a target profit amount at 5 USD, which corresponds to 43,647.90.
Open the trade. Wait for the price line to reach the predefined level. The trade will close automatically upon reaching the TP value. Click on the trading history tab and check the closing price.
It is identical to the price specified in the order. That means the trade has been closed automatically without delays or slippage by the trader's order.
Take Profit Calculator
A Forex Take Profit Calculator is a tool that automatically calculates the TP order amount based on the Stop loss amount, opening price, and the % of trades closed by TP/SL limit orders. In its turn, a Stop Loss level is calculated according to the risk management policy — trade volume, trade value, etc.
Example. A trading strategy results in 70% of loss-making trades closed by Stop Loss and 30% of profitable trades closed by Take Profit. Thus, we have:
0.7 * Loss > 0.3 * Profit
However, for a trading strategy to work, the eventual total loss must be less than total profit. Thus, Take Profit must be at least 2.33 times (0.7/0.3) bigger than Stop Loss. Eventual slippages considered, the value should go up to 2.5 times.
How to set Take Profit on LiteFinance's platform
Attention! There are many strategies on the internet where TP and SL amounts are calculated for 4-digit quotes, and some calculators do that as well. For example, like on the site of Investing. At LiteFinance, the values are calculated for 5-digit quotes.
Here's a guide to setting a Take Profit order on LiteFinance's platform for beginner traders:
You'll see two columns in the window that opens: one is for TP values, and the other is for SL values. The Take Profit column has three fields:
Take profit. Here you can set a TP value in USD. For example, you want to make a trading profit of 20 USD. So, you enter that value in the field. Remember to allow for spread.
Movement. Here, you can enter the number of TP points. For example, you wish a TP order to trigger once the price covers a distance of 30 points (for 4-digit quotes). The screenshot shows a Buy order. So, we need to enter "0.00300" in this field.
Close price. Here, you can enter a value the quote must reach for a TP order to trigger. Add 30 points to the opening price of 1.17180 and enter the value you get — 1.17480 — in this field.
When you're setting one of the values in any field, the rest of the TP values are automatically shown in corresponding units in the other two fields.
Example. You wish to set a TP value of 30 points in the "Movement" field. That equals 300 points for 5-digit quotes. So, you'll have the following values in the other two fields:
Take profit. 3 USD. In this case, we're opening a position of 0.01 lots in the EURUSD. One point cost is 100,000 * 0.01 * 0.00001 = 0.01 or 1 cent. Three hundred points — 300 cents or 3 USD.
Close price. Three hundred points will be automatically added to the trade's current opening price.
How to set Take Profit in МТ4 / MT5
The principle of setting TP orders in MetaTrader is identical to the TP setting on LiteFinance's platform. It can be set at the moment of trade opening, or you can modify an open position. You can also move a TP order right on the chart without opening the order's window. (Continue reading with LiteFinance)
