Take-profit order in FOREX lets you fix profit at the forecasted price level, when market gets to it. Take-profits are extremely convenient, and along with stop-losses fully automate your trades. You just open up a new position, place take-profit and stop-loss, and after that you can abandon your desk.
Trailing stop is an additional handy feature lots of terminals such as Meta Trader support by default. This means in case you place a trailing stop at the profit target, your position will not be closed the moment market reaches it. Instead, a floating stop order will be placed at the chosen distance away from the present market price to let more profit growth.
Normal profitability of your FOREX trading strategy may very well be increased by at least 30%, if you calculate profit targets using the average daily range of the currency pair you’re trading.
If you go with take-profits and trailing-stops set at profit targets, you decrease your profitability significantly and I will tell you why… If market moves higher than you have expected, your fixed take-profit order may substantially restrict your profit. Regarding a trailing-stop, if volatility is high close to the profit target, it can very likely set off your trailing stop order leaving you with a smaller profit.
Market never moves straight up or down, it typically moves in ranges between short bursts, and when your trailing-stop is placed very close to the current price, even a minor pull-back can cause your position to close. After your position is closed, market may continue to move in the direction of the trend, giving you a much lower profit.
To get rid of this problem, you can use another way of fixing your profits. Stay with fixed take-profits, but always set them based on the average daily range of the currency pair you’re trading, rather than setting them to the profit targets in order to permit much higher profits than you forecast. For example, the average daily range for EURUSD pair is normally 120 pips. It implies you should set your take-profit order as far as at least +120 pips.
There are lots of pros if you do so. In the event market starts to move in the direction of the daily, weekly, and global trend the day you open your position, there exists a likelihood that your large profit target will be reached. And you may at any time close your open position by hand if market arrives at your forecasted target and flats out. You can also employ a trailing-stop order beyond +120 pips in the event market really takes of and continues quickly moving close to your +120 pip take.