Take Profit — How do Successful Traders Use Take-Profit Orders to Earn More? - TU Research

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Summary

Take Profit — How do Successful Traders Use Take Profit Order to Earn More? TU Research

Traders, especially beginners, often wonder whether it is worth using a take-profit order when trading in the Forex market. There is no definitive answer to this question in the open sources, which is why Traders Union experts decided to conduct a research and find out how often successful traders use take-profit orders in their trading and how important it is for building a trading strategy.

In order to obtain a fair and trustworthy answer to the question of the research, the team of TU analysts surveyed 1,800 successful traders, trading via the brokers from the Top 10 of the Traders Union rating. As a result of the survey, TU experts obtained unbiased data based on the opinions of successful traders, who use different Forex trading strategies.

Take Profit — How do Successful Traders Use Take-Profit Orders to Earn More?

The research also provides answers to the following questions:

  • What is a Take-profit order?

  • What types of take-profit orders are used in the Forex market?

  • What opinions regarding the question of the research are available in open sources?

  • What are the pros and cons of using take-profit orders in the Forex market?

  • Is it worth using take-profit orders in your trading strategy?

  • What principles of setting up take-profit orders do successful traders use to maximize their profit?

The traders from all across the world will be able to apply the results of the research to trade successfully, as they are impartial and based on the in-depth analysis of the questions raised by the team of TU analysts.

Glossary

  • Forex is a global financial market for exchanging currencies. The participants of Forex trading include central banks of different countries, companies, top international businesses, commercial banks and private traders.

  • Forex broker is a financial services company performing the function of an intermediary between the buyer and the seller of currency in the Forex market.

  • Trade deposit means the funds deposited by a trader to his/her account with a Forex broker with the purpose of performing trading transactions.

  • Volatility is a term used to describe fluctuations of trading prices within a specified period of time. It is believed that the higher the range of price fluctuations, the higher the volatility.

  • Slippage is the difference between the actual price of the order execution and the price set by the trader when the order is opened.

  • Spread is the difference between the best buy price and the best sell price in currency exchange.

  • Trading strategy is a set of rules and algorithms used for making decisions when trading in the Forex market. The trading strategies are divided into those based on technical or fundamental analyses, and there are also combined trading strategies.

  • Technical analysis is a type of asset evaluation based on the assumption that with similar market conditions the price of the asset will change in the future in the same manner that it had in the past.

  • Fundamental analysis is a type of asset price forecasting based on macro- and microeconomic indicators and their changes. It assumes that as a result of the change of the economic indicators, the price of the asset will change accordingly.

  • Take-profit order is a type of order that is placed to automatically close a position and lock in the profit once the price reaches a specific level.

  • Stop-loss order is an order designed to limit the losses when the price reaches a specific level.

Opinions available in open sources

Having analyzed the open sources of information, TU experts came to a conclusion that there is no agreement of opinion on whether it is necessary to use take-profit orders in a trading strategy. There is a popular opinion: “Close the losses, let the profit grow”, which implies setting a stop-loss order, but not a take-profit order. However, not all traders agree with this approach. Some of them believe that it is impossible to build a stable trading strategy without using take-profit orders. There is also one more category of traders, who prefer to use Trailing Stop instead of take-profit orders.

Among the traders who do use take-profit orders, there is also no definitive opinion about the factors take-profit orders should be based on. Some traders set take-profit orders based on the resistance level of trading patterns and channels, while others prefer to be guided by the stop-loss order set up simultaneously with the take-profit order. The third category sets take-profit orders at a distance of a specific number of pips or percent from the opening price of the trade.

Opinions available in open sources

TU experts have tasked themselves with finding out which opinion of the above opinions is true and whether it is worth using take-profit orders when building a trading strategy.

Theoretical part of the research

Take-profit order is a type of a deferred order to the broker to close the position once the price reaches a specific level of profit. Once the price reaches the take-profit level, the position closes automatically with the trader taking the profit. The value of this type of deferred order is comparable to the value of the stop-loss order, as the traders cannot always monitor the market continuously, waiting for the right moment to exit a trade. Finally, a take-profit order is set in case the trader thinks he/she might lose the connection with the broker’s server. In this case, such deferred order to close the position will serve as an insurance against possible loss of profit on an open position. For closing long positions, Bid price (price of demand for an asset) is used for take-profit orders, and for short positions – Ask price (price of the offer). The position for which the take-profit order was set closes entirely once the price reaches a specific level.

In the vast majority of cases, take-profit orders are set based on the following:

borders of a trading pattern or price channel;

volatility;

predetermined number of points;

predetermined percentage;

ratio between Take-profit and simultaneously set Stop-Loss.

  • Take-profit based on a trading pattern or price channel

    Take-profit based on a trading pattern or price channel

    Take-profit is set right above the minimum (over the maximum) of the trading pattern or close to the borders of the price channel. This type of T/P order implies that once the price approaches the border of the pattern or channel, it will receive a certain support (hit resistance), which is why it is believed that it is best for the trader to lock in the profit, while the price of the asset hasn’t started the reverse moment.

  • Take-profit based on volatility

    Take-profit based on volatility

    Take-profit order is set based on average volatility the financial instrument has shown recently. This type of T/P order implies that the financial instrument has a certain historic volatility, which will be hard to overcome. That is why the traders who set T/P based on volatility believe that it is best to lock in profit.

  • Take-profit based on points or percentage

    Take-profit based on points or percentage

    This type of take-profit orders are most frequently used by day traders. It is assumed that the position will be closed once the price travels towards profit by a specific number of points or percent.

  • Take-profit based on the ratio between Take-profit and simultaneously set Stop-Loss

    Take-profit based on the ratio between Take-profit and simultaneously set Stop-Loss

    In this case, the distance from the price to the take-profit level is calculated based on capital management, i.e. the trader first determines the risk level of the trade, sets a Stop-loss order at the acceptable level and simultaneously a T/P, which exceeds Stop-loss by several times. In open sources, the most frequently specified ration is 1:2 and 1:3.

👍 TU experts noted the following pros of using take-profit orders:

Even in case the connection with the Forex broker is unstable, the position will be closed automatically at a profit once the price reaches a specific level.

They imply clear compliance with the trading strategy, excluding the psychological factor.

It frees the traders from needing to be on the trading platform for extended periods of time. The profit will be locked in automatically once the price reaches a specific level.

Improves trading discipline.

👎 As for the cons of using take-profit orders, the team of TU analysts specified the following:

Market makers (major players in the Forex market) are well aware of the strategies of using take-profit orders and try not to allow such orders to work.

It is possible that the trader will end up earning much lower profit, if the price of the asset continues to move after the take-profit order worked.

Loss of flexibility when making non-standard decisions.

A take-profit order may not be executed in case of a price gap or if the price touches the specified level only short-term.

Note:

Traders Union points out that when setting a take-profit order, you need to take into consideration the spread, and also possible slippage during execution of such types of orders. You also need to keep in mind that a Forex broker can fail to fulfil a take-profit order if the price touches the specified level only for a short period of time, as some Forex brokers specify limitations on closing orders in their trading rules, if the price stays at the specified level for less than one second.

Results of the research by TU Research Department (*)

To answer the question of whether it is worth using take-profit orders when trading in the Forex market, the team of TU analysts surveyed 1,800 successful traders. The respondents were traders from different parts of the world, trading via the brokers from the Top 10 of the Traders Union rating. All respondents have shown profitable trading for at least one year. The survey was conducted using the CAWI (Computer Assisted Web Interviewing) method. The non-sampling error of the survey with a confidence level of 95% is no more than 2%.

6.1. Surveyed traders by gender:

74% — men;

26% — women.

Picture 6.1.Respondents by gender, %

Picture 6.1.Respondents by gender, %

6.2. There are the following age groups in the sample:

38% of the respondents are aged 18-30;

40% — aged 30-45;

18% — aged 45-60;

4% of the respondents are older than 60

Picture 6.2. Respondents by age, %

Picture 6.2. Respondents by age, %

6.3. In terms of their trading experience, the composition of the respondents was as follows:

3% of the respondents have been trading on Forex for over 10 years;

27% — more than 5 years;

44% — from 3 to 5 years;

26% — from 1 to 3 years.

Picture 6.3. Respondents by Forex trading experience, %

Picture 6.3. Respondents by Forex trading experience, %

6.4. In terms of the average monthly deposit growth for the last six months the results of the surveyed traders are as follows:

3% of traders — up to 15%;

15% of traders — up to 10%;

32% of traders — up to 5%;

33% of traders — up to 3%;

17% of traders — up to 1%.

Picture 6.4. Average monthly return rate of successful traders, %

Picture 6.4. Average monthly return rate of successful traders, %

6.5. The responses of the respondents regarding their trading strategies were as follows:

49% use long-term strategies;

51% — short-term strategies.

Picture 6.5. The ratio of use of long-term and short-term trading strategies, %

Picture 6.5. The ratio of use of long-term and short-term trading strategies, %

6.6. The responses of the respondents to the question “Do you use take-profit orders when trading in the Forex market?” were as follows:

Yes, I use T/P — 40%;

No, I don’t use T/P — 31%

I use T/P sometimes — 29%.

Use of T/P Votes %

Yes, I use T/P

720

40%

No, I don’t use T/P

558

31%

I use T/P sometimes

522

29%

Total

1800

100%

Table 6.6. Distribution of traders’ answers on their use of take-profit orders in the Forex market.

Picture 6.6. Use of take-profit orders, %

Picture 6.6. Use of take-profit orders, %

The respondents who answered “Yes, I use T/P” or “I use T/P sometimes”, were also asked about the principle of setting a take-profit order.

The result is as follows:

24% of traders set take-profit orders based on the borders of a trading pattern or price channel;

19% of traders – based on volatility;

29% of the surveyed traders – based on predetermined number of points or percentage;

28% of traders – based on the ratio between Take-profit and simultaneously set Stop-Loss.

Principle of setting take-profit orders Votes %

Borders of a trading pattern or price channel

298

24%

Volatility

236

19%

Predetermined number of points or percentage

360

29%

Ratio between Take-profit and Stop-Loss

348

28%

Total

1242

100%

Table 6.7. Distribution of traders’ answers regarding the principle of setting take-profit orders

Picture. 6.7. Distribution of traders’ answers regarding the principle of setting take-profit orders, %

Picture. 6.7. Distribution of traders’ answers regarding the principle of setting take-profit orders, %

(*) Survey criteria:

  • Survey audience: Forex traders of the TU community aged 18 and older trading with the brokers from the TOP 10 list of TU rating.

  • The sample is representative in terms of age, gender and Forex trading experience.

  • Sample number: 1,800 respondents.

  • Survey method: CAWI (Computer Assisted Web Interviewing).

  • Non-sampling error of the study with a confidence level 0.95: no more than 2%.

  • Period of survey: August 9-12, 2023.

Findings

Based on the data collected in the course of the research, TU experts have reached the following conclusions:

  • 1

    The vast majority of successful traders surveyed by the TU analysts use or sometimes use take-profit orders in the Forex market, namely 69% of the respondents.

  • 2

    Traders who use short-term trading strategies use take-profit orders much more often than traders who prefer long-term trading strategies.

  • 3

    Experienced traders use take-profit orders much more often than their less experienced colleagues.

  • 4

    When setting a take-profit order, successful traders are most frequently guided by the predetermined number of points or percentage and also the ratio between take-profit and stop-loss.

  • 5

    The results obtained in the course of the research do not depend on gender and age of the traders. The majority of men and women, regardless of their age, agree that using take-profit order has a positive impact on profitability of trading.

Findings

PDF version of the TU research

For more detailed information on using take-profit orders, download the full version of the research conducted by our team.

PDF version of the TU researchDownload PDF version

How do Successful Traders Use Take-Profit Orders to Earn More — TU Research

Take-profit order is a good instrument for automatic closing of the position and locking in profit. This type of order is also an important part of building capital management strategy and calculating the size of the position. However, one needs to keep in mind that not all trading strategies envisage the use of take-profit: for example the strategies that use trailing stop-loss mostly don’t use take-profit orders. It is also important to remember that you need to take into consideration the spread, possible slippage and trading conditions of the Forex broker when setting take-profit orders.

The right setting of a take-profit order allows traders to not only earn a predetermined amount of profit on the trade, but also alleviate stress, as the position is closed automatically, thus ruling out the psychological factor. Also, take-profit orders allow to manage trader’s working hours better, providing an additional flexibility for trading in the Forex market.

Use take-profit orders correctly and Forex trading will bring you high and stable profit.


Antony Robertson

Antony Robertson

Traders Union’s analyst trader

Background info.

TU research is a result of many days of hard work by our experts, who collected, processed and analyzed a huge amount of information and opinions on the use of take-profit orders. Our data are largely based on the success stories of real traders, who work with TU, which supports objectivity and impartiality of our research.

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Our research is of a charitable nature and was created at the expense of Traders Union with the objective of increasing financial literacy of Internet users and increasing the percentage of successful transactions among traders. If you enjoyed our research and found it useful, please share it with others.

Team that worked on the article

Mikhail Vnuchkov
Author at Traders Union

Mikhail Vnuchkov joined Traders Union as an author in 2020. He began his professional career as a journalist-observer at a small online financial publication, where he covered global economic events and discussed their impact on the segment of financial investment, including investor income. With five years of experience in finance, Mikhail joined Traders Union team, where he is in charge of forming the pool of latest news for traders, who trade stocks, cryptocurrencies, Forex instruments and fixed income.

The area of responsibility of Mikhail includes covering the news of currency and stock markets, fact checking, updating and editing the content published on the Traders Union website. He successfully analyzes complex financial issues and explains their meaning in simple and understandable language for ordinary people. Mikhail generates content that provides full contact with the readers.

Mikhail’s motto: Learn something new and share your experience – never stop!

Olga Shendetskaya
Author and editor at Traders Union

Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.

Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.

Olga’s motto: Do well and you’ll be well!