5/5/2021 Take profit: setting profit targets | Tradimo

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Take profit: setting profit targets

Money Management to Enhance Your Performance

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Lesson

Take profit: setting profit targets

A fi i i l l h h k
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5/5/2021 Take profit: setting profit targets | Tradimo
A profit target is a price level on a chart that you set to take profit.

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Profit targets are the most important

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your trading. It is not your entries
where you make a profit or loss, it is your exits. You need to be able to
determine a suitable profit target for your trading – one that gives you a
realistic profit target, but also gives you a sensible risk to reward.

Choosing a profit target is a key part of your trading strategy – it requires you work out in
advance exactly how much risk you are prepared to take for how much potential reward.

Profit targets are actually the most important part of your strategy, because it is not your entries
where you make a profit or loss, it is your exits. You need to be able to determine a suitable profit
target for your trading – one that gives you a realistic profit target, but also gives you a sensible
risk to reward.

There are countless ways in which you can set your profit target using technical indicators and
other tools. We will show you two easy ways to set your profit target: support and resistance, and
daily range levels using the ATR indicator.

Using support and resistance to set profit targets

Support and resistance is a powerful concept used by traders to read and interpret price action.
It is based on the theory that the price may struggle to break above certain resistance levels or
below certain support levels. You can use this to determine profit levels.

Using resistance
If you are in a long trade, key resistance areas can be a good place to set your profit target
levels. If you are in a short trade, support areas can be a good place to take profit.

The chart below shows an example of how resistance can be used to take profit when you have
a long position and prices are moving upwards in your favour:

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5/5/2021 Take profit: setting profit targets | Tradimo

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1. Long entry before uptrend

2. Area of prior resistance
3. Profit target is set using the prior resistance level

As you can see in the chart above, after the initial entry into the market comes a favourable
move up to a level of resistance. At this point the price begins to stop and may even reverse
direction.

In this example, you should look to take profit where the price first reaches the level of
resistance.

Using support
The chart below shows an example of how support can be used to take profit when you have a
short position and the market is moving down in your favour:

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5/5/2021 Take profit: setting profit targets | Tradimo

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1. Short entry
2. Prior area of support
3. Profit target set at the support level

As you can see above, after the trade is entered, the price moves downwards to a level of
support. At this point the price struggles to break below the support level and may even reverse.

In this example, you should look to take profit where the price first reaches the level of support.

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Different types of support and resistance

Support and resistance is not confined to horizontal support and resistance only. For instance,
you can use pivot points, trend lines and channels as they all present support and resistance in
one way or another.

What you are essentially doing is finding out where the price is likely to stop and taking your
profit at that point.

Using daily range levels to set profit targets

Another effective way of working out your take profit levels is by using daily range levels.
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To identify daily range levels, you can use the average true range tool. This tells you exactly how
far you can expect a price to move on any given( )day based on recent price movements.
Apply the average true range (ATR) indicator to your daily price chart, as shown in the image
below: ENROLL FOR FREE

For a long trade, once you have entered your trade you can use the value of the ATR to place
your take profit away from your entry.

The image below illustrates this process:

1. The ATR value is 102 pips

2 Long position entered
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5/5/2021 Take profit: setting profit targets | Tradimo
2. Long position entered
3. Using the ATR value, you place your profit target 102 pips from the entry
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For a short trade, once you have entered your trade you can use the ATR value to place your
take profit away. ENROLL FOR FREE

The image below illustrates this example:

1. The ATR range is 60 pips

2. Short position entered
3. Using the ATR the profit target is set 60 pips away

The importance of risk to reward ratios

A risk to reward ratio is a measurement of how much profit you are anticipating in exchange for
the maximum potential loss you can suffer.

A risk to reward ratio is a measurement of how much profit you intend to

make in exchange for the maximum potential loss you can suffer.

When setting your profit targets it is very important to trade with a positive risk to reward ratio.

When a setup occurs that does not offer an appropriate risk to reward ratio, it is always best to
leave the trade and wait for a more profitable scenario later on.

Summary
In this lesson, you should have learned:
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5/5/2021 Take profit: setting profit targets | Tradimo

a profit target is a price level on a chart that you set to take your profit.

()
choosing a profit target requires you to work out in advance exactly how much risk you are
prepared to take for how much potential reward.
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there are countless ways in which you can set your profit target using technical indicators
and other tools – two of the most popular are support and resistance, and daily range
levels.
if you are in a long trade, set your profit target around key resistance areas.
if you are in a short trade, set your profit target around key support levels.
the average true range tool tells you exactly how far you can expect a price to move on
any given day based on recent price movements.
for a long trade, work out where the price is likely to stop moving upwards based on its
average range and set your take profit there.
for a short trade, work out where the price is likely to stop moving downwards based on its
average range and set your take profit there.
when a set-up or trade occurs that does not offer an appropriate risk to reward ratio, leave
it and wait for a more profitable scenario.

SHOW LESS

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The Basics of Money Management ▾

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Money Management to Enhance Your Performance

Take profit: setting profit targets

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Quiz: Understanding of setting profit targets

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