With take profit order, your trade close whenever it reaches a particular amount of profit. Some traders also refer to take a profit order to limit order. If your take profit orders get hit during the trade, then that trade closes at the current market value.
Ways to Strategically Use It
A take profit order consists of several stop-loss orders. Those stop losses help you set your risk and reward. Using it, you can limit your risk and exposure to the market by exiting the trade whenever the market price is at a favorable price.
Since appropriate trade size and the risk-reward ratio is way more essential than your trading strategy, thus, take profit order is also essential for your trades.
Commonly, this order will perform better with a shorter-term trading strategy. The popular strategy to be used alongside the take profit order is pivot points or average true range. Those two strategies help traders set the appropriate level of their take profit order.
Shorter-term traders will quickly see gains if the use takes profit orders. But without the understanding of the right time to exit the trade, those gain will just slip away.
Meanwhile, for the traders’ intraday profit target use the average range plus an overnight extreme. Or else, you can also use a weekly pivot point.
Reasons to Use It
As we all know each trader has a different risk profile and time in the trades. Thus, if a trader wants to use take profit order, then, he or she has to ask these questions, first.
The first question is whether a trader is a swinger long term trader. The swinger long term trader will look for advantages in longer-term trends.
If a trader is a trend trader, then he or she will most likely suffer when the trader recognizes a good trend and exit the trade early.
Traders usually also use this order if the market is ranging. That is because its resistance level usually holds back the price advances. Meanwhile, the support levels usually hold up price drops.
