When to Take Profits

By: Christopher Lewis

One of the most difficult questions that a trader will ask themselves is when to take profits. This is a very complex issue, and as such has no one correct answer. The correct way for you to take profits will be different than someone else. It comes down to your trading style and timeframe much of the time.

One very popular way to take profit in a successful trade is to put an order in to close a position when the next support or resistance level is reached. This is one of the easiest ones to do, as long as you understand support resistance. The theory on this of course is the value will be able to avoid any whipsaw that the market may produce as it undulates along its course.

Moving average crossovers also serve as take profit signals for some traders. This tends to be a favorite of the longer-term trader, as it is a trend-following system. This approach allows for large areas for the market to move around in, allowing you to stay in the trade for much longer periods of time. Depending on the timeframe that you're using, this can be months or even years believe it or not.

Candlestick recognition is another form of technical analysis that will allow you to take profits at specific points. This is normally used in concert with support and resistance, as the two disciplines work very well with each other. For example, if you are long a particular currency pair and you spot a shooting star, this is a signal that the trade may start to work against you. If you marry this with a serious resistance area, this gives you two very strong reasons to consider exiting the trade. Conversely, if you are short a currency pair and see a hammer, this could be a trade that's about the work against you. This is especially true if support is to be found in the same area.

Another common and an extremely simple way to take profit is to simply close the trade out at the end of the trading day. Day traders do this every day, so that they can sleep at night without the worry of the trade working against them.

As you can see, there are several different ways to take profits when you are trading Forex. It's going to come down to a lot of different reasons, including things such as time frame, but also other things such as Forex trading psychology. One of the best ways to determine the optimal exit strategy is to pay attention to your emotions when you try different strategies. The one that you feel the most comfortable with, will typically be the best. This is because you will be much more able to follow it and profit from it.

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.