Take profit strategies

I just read from post called Risk and R-Multiples from the Forums/Forex Discussion section the following statement
<quote>
One of the key principles for both trading and investing success is to always have an exit point when you enter a position. Trading without a pre-determined exit point is like driving across town and not stopping for red lights—you might get away with it a few times but sooner or later something nasty will happen.
</quote>

And I thought that a new thread about Take Profit Strategies might be instructive. I would like to illcit everyone's ideas on Take profit strategies.

To start I thought I would like to expalin my strategies using the analogy started above.

Trading with a pre-determined exit point is like driving across town and running thru every traffic light to stop suddenly at the third (some arbitrary number) and never arrive at your destination.

That being said, let us take the analogy of driving and apply it to trading.

When you begin a trip accross town (open a trade) you will need to know where to look for Traffic lights and intersections (areas inherintly dangerous) where you may need to slow down (anlalyze market conditions) and decide to stop (exit), or to keep on going ( hold trade). If you decide to keep going you need to look around at the street signs (anlalyze market conditions) to see if you are going in the right direction. How do you determine if you are lost or going in the wrong direction? How do you determine if you have arrived at your destination?

As for me, I do not use fixed Risk / Reward ratio to determine a TP level. I have a plethera of trading tools in my tool box. Trend lines and Support and Resitance, chart patterns(Thank you James16) and a 5-8 EMA cross are a few of my favorites. This does not mean I do not use Risk / Reward ratio at all, it is one of many factors I use to enter a position. Occassionaly I will even use a trailing stop to lock in profits if my analysis tells me a run may be over soon and I can not monitor the position manually. I leave pips on the table all the time. My philosophy encourages this, I am a trend trader that is satified with trying to reap the middle 60% of a move. If I hit a top or bottom it, congrats to me, pat myself on the back, lets move onto the next trade.

This is not the end of my take profit strategy just the begining. I believe that Trading is an artform based on rules. Learn the rules and practice and you can be successfull. If you come to love it you can truly become a master.

Oh BTW, to end this post on the Trip acorss town analogy, There is always the chance of an accident , Money Management is the Airbag / seatbelt that will help you survive.

EllisEdi, I was told you have to know where you are going before you plan how to get there. Every thread you read about a strategy, they all have in common is, evveryone stresses the exit. This seems to be the most important but least talked about. What i always hear is "Cut your losses and let your profits run," or "Protect your profits." I am still new to this but what seems to be promising in my backtesting for my exit strategy is scaling out. If I enter a buy with 3 lots at 1.3000 with a 20 pip stop, I exit 2 lots at +30(1.3030) and move stop to+1 with spread(1.3003 eur). My target profit is +60 pips(1.3060). Instead of setting a target I will just adjust my stop to +60 and see if I can gain more pips. But still testing with 3 lots and 2 lots.

bump

I have noticed that many traders use ridged tp and sl levels which I think is a major flaw in there trading system as the market changes periodically and does not react the same as it did when they created the strategy.

I use a tp and sl method based of how much the market moves before entry.

And chart the changes periodically to adapt as the market changes attitude over several months.

kindly explain further... are u using fibo to take profit ?

I make my own arithmetic calculations to determine my own tp and sl , it’s sort of like a fibo line but I take several oscillations and determine several averages and combine them according to relevance , I will not disclose the exact formula as it took me allot of time and cash to develop. But maybe what I said might spark and idea in some other trader.
What I have found is that determining the correct sl and tp levels for trades is a very costly job and it never ends as you have to keep analyzing the changes happening in the market and re-adjust your exit parameters.

I use one entry two exits for my trading. The idea is that you never know how long a trend will go for or how long it will be until there is a large enough pull back that you want to take profit.
So my first exit is a set take profit based on support / resistance. Ideally I'd like to take profit well away from confirmed resistance. The second half of the trade uses what I call a manual trailing stop. I once support is confirmed and the last bar has moved away from the singal bar then I move stop loss 20 - 50 pips away from this.
The theory behind this is you can make money in trending or ranging markets. It is essentially a hedge.