As well as Stop Loss, Take Profit is one of the solutions created with the help of MetaTrader programming to make Forex trading more successful. A take profit order is a way to somehow save your profits, meaning if you reach a certain ask price, you will automatically sell.
Again as well as Stop Loss, Take Profit can be automatic and manual, as both are developed by means of metatrader programming. First let’s look at the automatic Take Profit. It is activated in the following way: a BUY order is opened and value of Take Profit is being set as an absolute value lower than opening price. And vice versa: when a SELL order is opened, the value of Take Profit is set higher than the opening price. In case the Take Profit level is reached, the order is closed automatically.
Now take a look at the few examples.
Take Profit example for BUY order.
Ask price=1.4040, Bid=1.4038. We open a BUY order. Open price is 1.4040. Let’s set the Take Profit value=1.4060. See Picture 1.
The price starts to move up and reaches Ask value=1.4060, but the order is not closed as the BUY order will be closed as per the Bid level. The price keeps on going up and passes the Bid level=1.4060. Then the order is closed automatically. The profit is accounted for 20 pips. See Picture 2.
Take Profit example for SELL order.
The situation is the same for the SELL order. We have Ask price=1.4040, Bid=1.4038. Now open a SELL order. Open price is 1.4038. Let’s set the Take Profit value=1.4018. See Picture 3.
Price is decreasing and reaches the Ask level=1.4018. The order is closed automatically. The profit is accounted for 20 pips. See Picture 4.
Automatic Take Profit
One of the features of Take Profit is that it cannot be set too close to the order opening price. Minimal distance may vary and is being set according to configurations of the broker server. Value is counted from the Ask price for BUY orders and Bid price for SELL orders.
Due to the peculiarities of metatrader programming, the Take Profit value can be modified while the order is being open. In this case the rules for setting a new Take Profit value are exactly the same as during the order opening, the only difference being the usage of the current price value instead of the order opening price.
To make the trading process more convenient, the traders use relative values of Take Profit in the pips, e.g., for the value of TP=25 at current price of Bid=1.4038 and Ask=1.4040, absolute value of Take Profit for BUY order will be 1.4015, and for SELL order under the same conditions it will be 1.4063. I.e., Ask price is taken as a basis for the BUY order and Bid price is taken for the SELL order. In this way, after closing an order using the Take Profit we will receive precisely 25 pips of profit.
Manual Take Profit
Now let’s look at the manual Take Profit. As we can see from the name, the manual Take Profit is different from the automatic one in a way that when the Take Profit level is reached, the order has to be closed manually. On the one hand it seems inefficient because extra operations need to be performed, but on the other hand manual closing proves effective on some occasions. For instance, in case of applying manual Take Profit we can use a function of partial closure of an order under different levels of profit for one and the same order, while this function is not available in automatic Take Profit. It means that when an order reaches the automatic Take Profit, it will close completely.
Let’s take a look at the example. We open an order with 3 lots volume. And we will close each lot at a different level of profit. TP1=10, TP2=20, TP3=30. When the order reaches TP1 and TP2, parts of the order will be closed manually and closing of the part at the TP3 level will be performed automatically.
In this way, with the Bid price =1.4038, Ask=1.4040, the parameters will be:
For BUY order: open price=1.4040, manual Take Profit=TP1=1.4050, manual Take Profit=TP2=1.4060, standard Take Profit=TP3=1.4070.
With the Ask=1.4070, Bid price =1.4068 the parameters for SELL order will be as follows: open price=1.4068, manual Take Profit TP1=1.4058, manual Take Profit =TP2=1.4048, standard Take Profit=TP3=1.4038.
Manual method of closing the orders has at least one disadvantage. If a technical failure suddenly occurs on the trader side, the order will not be closed precisely on time. In automatic method, order will close in any case regardless of technical condition of the MetaTrader terminal. That means that the trader is responsible for manual order closing, and the broker is responsible for the automatic closing. These features have to be taken into account when choosing parameters for the order being opened.