In most cases you want to fix your profit automatically when the market reaches it, so you set your take profit order to the profit target point.
From another point of view, it is also possible for you to use a trailing take profit order in order to maximize your earning.
But both of the said options have disadvantages. If the market’s movement extended beyond what you forecasted, the first one limits your profit. The latter option limits your profit at the same time in case that the volatility of a trend is very high. Just what will happen next is… Your current trailing take profit order might be set too near to the current price once activated, and be implemented when a slight short term pull-back occurs. And then, market edges greater and greater, and you just loose a large portion of your forecasted profit.
There is also a better method of fixing your profits. Stick to fixed take-profits, but always set them based on the average daily range of the currency pair you are trading, rather than setting them to the profit targets to enable much greater profits than you forecast. For EURUSD the average daily range is about 120 pips. It implies you should set your take-profit order as far as at least +120 pips.
When you will open a position, you better use a fixed take-profit order and set it on +120 pips for EURUSD currency pair which is the average daily range of the currency pair you are trading. There are number of advantages you can enjoy with this approach. Most of all is that if a great trent begins the day you enter the market, you can have a great chance that your large take profit order will be implemented.
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Posted under Currency FOREX, Options, Stocks, Strategies
This post was written by LinkVineAuth on December 27, 2011
