Take profit is an automatic tool, made available directly by the best online brokers, which allows you to automatically close a position as soon as it has reached a profit target.
Trading online, trying to get the most results possible, also means making the most of all the techniques and tools that technologies make available. One of the most important of these is the automatic position closing system, i.e. take profit.
To immediately go into detail, it is an integrated system within online brokers, in order to be able to close a position when a certain objective is reached. This is done with the aim of achieving a targeted return.
While its meaning can be very simple to understand, it is essential to understand how to use it in online trading, how it is followed and implemented by traders and why it can be a support in strategies.
Remember that in any strategy, each aspect must be weighed appropriately, trying to analyze as much information as possible. Setting a take profit randomly would make no sense.
What is Take Profit: the definition
To fully understand what Take Profit is and how it works, we will start with its real meaning. By starting by breaking down the terms, it is possible to translate “take” by “take” and “profit” by “profit” simply.
By combining the two concepts, it becomes clear that the term “take profit” literally means “to take profits”. In a trading strategy, one of the most important steps is certainly the opening of the position, that is, the right moment to enter the market.
To do this, we use technical and fundamental analysis, which refers to the study of charts and everything that can be useful to understand market sentiment. If the choice of entry is a key point, the moment of exit is just as important.
The profitable exit from an open position on a given financial instrument is called a Take Profit. In other words, it allows you to automatically close your position when a certain threshold (on the rise) is reached, that is to say when you consider that there is a profit.
We can therefore consider that it is a real automatic order, which acts independently of what is happening. Once the value of the asset reaches the preset parameter, it closes the position, taking the profit.
The potential profit itself is obviously fixed a priori by the trader, who can however act over time to modulate it according to his needs and requirements.
The Take Profit therefore represents the objective that the investor sets for this particular position, that is to say the objective that he supposes to reach before considering himself satisfied with the strategy implemented, by ending it. .
Take Profit: how to fix it in our trades
As we deduced in the previous section, the meaning of the term “take profit” is quite simple and basic: it is a predetermined and automatic closing instrument.
A completely different aspect concerns the ability to define and fix the Take Profit in a trade order. In this regard, let’s start by knowing that can be plotted in any graph related to a financial asset. In other words, it can be used in the stock market, cryptocurrencies, forex, commodities and more.
To set it up in a potentially correct way, traders use specific studies including technical analysis, fundamental analysis, and other studies within the charts.
Concepts which are on the one hand important for establishing the moment of entry into a position but which are also valid for trying to understand the moment of exit.
In this regard, the identification of Take Profit can be done on the basis of different indicators and different studies.
Here are some of the most common methods used by professional traders:
- Geometric Figures (called Patterns)
- Support and Resistance
- Stop-loss
Take Profit with Pattern
Take Profit with Pattern consists of choosing your target based on the study of geometric figures.
These same numbers are called Pattern and indicate potential market trends, with reference to possible changes in direction. The same change in direction in turn indicates a trend reversal.
For this reason, in a bullish situation, with a pattern indicating a potential reversal at point x, the trader will have the opportunity to fix his Take Profit just before the signal shown by the geometric figure.
Take Profit with Support and Resistance
On the contrary, Take Profit with support and resistance is based on the drawing of lines, which refer to a stationary phase of the market, that is, when the main variables allow the price to be stopped on a decline (positive upwards or negative downwards), for a given period.
Supports and resistances are plotted directly on the charts and can be calculated in conjunction with many other analytical indicators. A typical example, considered fundamental for studies of this type, is that of Fibonacci retracements.
With regard to the implementation of Take Profit based on support and resistance, we can talk about taking profit on resistance, in the case of upside strategies, and taking profit on support, in the case of downward strategies.
In other words, the trader who uses Take Profit tracking based on support and resistance is relying on the trend reversal principle.
The same can be done in a sell rather than a buy situation. The study of patterns, in association with take profit, represents an additional support used by traders to establish possible targets in the chart.
online brokers
Now that we understand what Take Profit is, it is possible to delve into the purely operational aspects.
The Take Profit is set by the trader directly in the trading platforms, i.e. online brokers. These have greatly facilitated access to the markets and also allow the use of many trading tools.
In practice, the Take Profit simply represents a section in the opening parameters of a particular order. In other words, it is a simple button that we can activate and which indicates the limit value that we would like to reach in profits.
One of the brokers with the most analytical tools and automatic mechanisms that you can implement is therefore eToro. Its platform is one of the simplest in the industry. Opening a position and setting Take Profit is very simple and intuitive.
In this broker, it is possible to locate the asset you are interested in, then access the trade screen, the user then has the possibility of establishing his own strategy, setting the quantity and evaluating his choice, benefiting from the visualization of the graph in real time. The Take Profit section then allows the user to configure the automatic system, according to their preferences.
why is it useful?
Before jumping to conclusions, it is worth considering why the TP is one of the most widely used instruments in the field of trading.
Why does a trader not close his position manually, but rather let the Take Profit act automatically? The first point concerns the possibility of being able to close its position with precision, at any time.
Secondly, Take Profit, contrary to what one might think, does not limit the profit, but rather allows you to close the position without getting carried away by the euphoria of the moment, which often leads to imagine being able to move the bar of profit target higher and higher.
In other words, it can act as a true risk modulator (always to be considered and kept in mind on any financial instrument), also acting on aspects related to trading psychology and capital management (the famous Money Management).
To conclude
We were able to examine in detail the meaning of Take Profit, its main characteristics and the types present in the sector.
Si su explicación técnica resultó sencilla e intuitiva, su estructuración requirió el estudio de varios parámetros y conceptos clave. Estos incluyen la presencia de soportes y resistencias, patrones de gráficos, estudios de gráficos y mucho más.