4 Simple Ways to Take Profit in Trading

Danielle Franklin

take profit You have got the basics of trading under your belt. You even know how to enter a trade in a smartest way with minimum risk. Now it is time to brainstorm over exit strategies, because without a winning exit your perfect entry is worthless.

Taking profit (aka exit) strategy is far from simple and is unique from trader to trader. Depending on your trading preferences and time frame, taking profit is a true art form of forex.

Below are some of the widely used techniques in taking profit:

1. Support or Resistance

One way of taking profit is to place an order to close a position as soon as support or resistance level is reached.

The idea behind support and resistance is easy to grasp:

Support is the floor for the price.
Resistance is the ceiling for the price.
If the price breaks through the resistance, that level turns into the new support.
If the price breaks through the support level, that level turns into the new resistance.

Your agenda as a profit seeker is to use support and resistance during the trend trading:

When the trend is going upwards, go long at support and take profit at resistance.
When the trend is going downwards, go short at the resistance and take profit at support.

Pay attention to support and resistance as a reference points during the decision making. You will have a clear idea where to place stop loss and where to take profit orders.

2. Average Crossovers

Moving average crossovers can be an indicator of profit taking for some traders.

Moving average is the average price over a selected period of time, illustrated on your chart as a line. Every new day brings new values and the moving average line continues to stretch along the chart.

In most cases, traders use 20 or 50 period simple moving averages to see the price movements in the last 20 or 50 days.

When 50 days average crosses beneath 200 day average, you have what traders call "Death Cross".

When 50 days average crosses above 200 day average, you got yourself "Golden Cross". This shows that the intermediate term trend (aka 50 days) has crossed the longer term moving average (aka 200 days).

When intermediate term trend shows signs on changing and goes beneath 200 day average, it is an indicator to take profits.

3. Candlestick

Candlestick charts have the same idea as the traditional bar chart; however candlestick charting techniques are much better indicators.

Together with support and resistance levels, you have a great way to figure out where to set the take profit.

For example,

Shooting star formation is a bearish reversal pattern which usually occurs at the top of uptrends. If you are going long and you see a "shooting star", this is a signal that the trade is about to work against you. Together with the resistance indicators, you may find yourself in need to get out of the trade.

Hammer pattern shows a weakening in bearish sentiment. So if you are going short and see a hammer and the support level is somewhere in that area as well, you have a strong indicator to take profits.

4. End of the Day

This technique is for day traders. You simply take profits at the end of the trading day. Not only you get the money, but now you can also sleep tight at night without worrying!