PROFIT LIMITS

Profit limits are orders that are designed to close a position with a profit. Technically, if
the ongoing trade was to buy, for example, the EURUSD at 1.3200, then the profit-limit
trade would be a sell limit at 1.3220 if a 20-pip profit was desired. The price would have
to go through it to execute the trade. The limit order guarantees that price or better, but
not worse. But the price has to go through the position. Many new traders see the price
hit the limit and think it should have been executed. The question arises of how to form
profit targets. This is the other side of the stop loss issue.
The major difference between being able to formulate a stop loss risk-control strategy
and being able to formulate a profit-limit strategy is that one has total control over
stop losses. Where to set them is up to the trader. But achieving profit targets is not under
the control of the trader. Market conditions vary and setups vary, with the potential
for small profits, from 5 pips to bigger moves of 50 pips and more. The best approach is
to become proficient in getting small moves. A good medium ground for setting a profit
target is 15 pips on the trade. This target falls within the ranges offered by the market
under even small time frames. It is achievable, and coming close to it is acceptable. The goal of the trader should be to become competent in achieving an average 15 pips per
trade. Once this is achieved, gaining more pips can be accomplished by adding more lots
and by becoming skilled in managing the trade. This brings us to the issue of multiple-lot
trading.




By Abe Cofnas