What Should I Consider When Setting a Take Profit Target?

Written by Mike Druttman

Reviewed by Nadav Zelver

Back when I began my trading journey, I quickly learned the importance of setting a Take Profit (TP) target. Let me guide you through my experiences and considerations.

1. Understanding Take Profit (TP)

In my early days, I misunderstood TP. I saw it as a mere exit strategy rather than an essential risk management tool. Definition and Purpose: It's a predetermined price where you close an open position for a profit. It's the beacon guiding my trades, ensuring I'm aligned with my financial goals.

2. Factors Influencing Take Profit Targets

My strategy has always been adaptable, considering:

• Market Volatility: I've seen trades hit TP rapidly in volatile markets, only to reverse just as fast. It taught me caution.
• Time Horizon: Whether scalping or going long-term, I adjust my TP to reflect my strategy.
• Position Size & Asset Liquidity: I learned the hard way when trading a sizable position in a less liquid asset; it can be harder to hit your TP.

3. Technical Analysis Considerations

Over time, I've relied heavily on chart patterns:

• Support and Resistance: I once placed a TP just beyond a resistance level. It never hit. Now, I consider these levels carefully.
• Moving Averages & Fibonacci Retracements: My trade journals consistently showed better results when these tools were used to inform my TP.

4. Fundamental Analysis Considerations

After being caught off-guard by unexpected news early in my career, I now factor in:

• Economic Indicators: I've seen trades turn on a dime after a major data release.
• Company Earnings: I once secured a handsome profit by setting a TP ahead of a tech company's earnings release.

5. Risk-Reward Ratio

My mentor always said, "Protect your capital." This means ensuring my potential upside justifies the risk. A 2:1 ratio has been my golden rule.

6. Emotional Factors

I've felt the sting of greed. Once, I moved a TP thinking a stock would climb indefinitely. It reversed, and I lost potential profit. Now, discipline rules my decisions.

7. Review and Adjust

A trade journal review showed that my most successful periods were when I adjusted TP based on evolving market conditions while staying disciplined.

8. Tools and Platforms

After trial and error, I found platforms like MetaTrader invaluable. Automated TP settings save me from impulsive decisions.

9. Real-World Examples

A vivid memory is setting a TP on a gold trade, expecting a minor geopolitical event to boost prices. It hit, validating my analysis.

10. Common Mistakes to Avoid

I've made most mistakes: setting TP based on sheer profit desire, neglecting major news, and being too rigid. My losses were lessons, teaching me the value of adaptability and research.

In Conclusion: My trading journey taught me that setting a Take Profit target is both an art and science. Through my personal highs and lows, I've distilled these insights, hoping they'll guide you as effectively as they've served me.