subject: Profiting Taking; Arguably The Most Difficult Aspect Of Forex Trading [print this page] It may sound silly but closing out a profitable trade is often the most difficult part of forex trading. The feeling of greed can be overwhelming for many traders when they are up a large amount of money. This feeling of greed can result in irrational and illogical actions such as moving your profit target further than you originally planned or removing it all together and trying to let the trade ride. A trader needs to define his or her exit strategy before entering the market. This way all emotion is eliminated. The key to this is developing the discipline to stick to your pre-defined exit strategy in the heat of the moment; even if you think the trade will keep going in your favor.
Fear and greed are not rewarded in the forex markets. Your greed will cause you to let profitable trades turn into losers and your fear will cause you to over-analyze the market and miss out on trades all together. By pre-defining your trading strategy before entering you give yourself the best shot at consistent profits by eliminating fear and greed. You must do everything within your power to remind yourself that your own emotional impulses are the main obstacle to you making money in the forex market.
Probably the most frustrating thing that traders have to endure is seeing a large open profit crash back down to zero or even turn negative. In order to avoid this traders need to pre-define their strategy for taking profits and managing their stop losses. By following a trading method that gives us well defined and effective entry signals we can then construct a profit taking system around this method. Traders need to understand that they must decide before entering the trade whether they are going to get out at a predefined distance from the entry or if they are going to employ a trailing stop loss and try to let the trade run.
For traders with smaller accounts it is generally advisable to take smaller profits in order to build the trading account up. Those with larger accounts can more often try and let trades run because they can withstand larger draw downs. Generally speaking it is a good idea to take a profit once it reaches between 1 to 4 times the amount you risked on the trade. This is because the forex market is contrarian and you can reasonably expect a trade that is currently one hundred to four hundred pips in your favor to have a major correction very soon.
Many traders will wait to take profits until the market has corrected and a large amount of their open profit has disappeared. This is why you must predefine your profit target before entering and not worry if the market goes a little beyond it. It is very difficult to convince yourself to close out a trade while it is strongly in your favor. However, this is the exact time you need to close it out because if you don't take the profits then they will eventually turn against you and you will sit and wait for the trade to turn back around and that will likely not happen, or if it does it will happen after you get stopped at break even or close out for a loss. Profit taking is all about doing the opposite of what feels good at the time, which is why it is so hard. If you stick to a consistent and profitable method that gets you into quality trades you will have many more opportunities to work on your profit taking skills.
