To Profit Take, or not to Profit Take, That is the Question…?

Filed under: Learn Forex Trading |

Leading on from the last article about trailing stop losses, I would like to talk a little bit more about the issue of profit taking, and some of the pros and cons of it.

 

To begin with, if you simply set your ‘stop loss’ and ‘take profit’ target, and do not, ever, touch the trade again until it has either hit your stop or your target, then you are operating what is called a ‘set and forget’ strategy. This kind of strategy has its merits. For example, if you are busy and can’t get to your trading screen often, then this is perfect. However, the downside is that you need a thick skin to take all of the losers, as the majority of your trades will fail if you operate a positive risk-reward scenario, and that means that you can have extensive drawdowns. However in the long run, as long as your money management is good, you should come out on top if you have a market edge.

 

The other way of doing things is to set a stop loss and target level, and then to take slices of profit as the trade moves in your favour. This is all about protecting your bank and limiting drawdowns. It is a less emotional way of trading as your bank is less volatile. However, the downside to this is that you may miss out on the maximum profits that you could make by taking profits too early; and if you don’t give the market enough room to ‘breathe’ by moving your stops up as well, then you could be in effect shooting yourself in the foot.

 

Whether you operate a set and forget type of system, or you take profits along the way, is really a matter of personality and personal preference. What you decide, is ultimately, up to you.

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