In the forex market, it always pays to enter a trade with a well-developed plan. However, the market is a rapid, fluid entity keeping any trader on his toes. Remaining committed to one’s plan and yet maintaining flexibility when the market is moving in one’s favor is the proper balance to strike in currency trading.
A take-profit target is the net gain one is aiming for at the close of an existing position. If a trader adjusts his take-profit target, he must also adjust his stop-loss order in the same direction. For example, if the trade is long, the trader raises his take-profit while at the same time raising his stop loss too. If the trade is short, the trader lowers his take profit while at the same time lowering his stop-loss order as well.
Reasons to Extend Take-Profit Targets
- The Currency Pair: If the currency pair being traded is volatile, a drastic trading shift may be necessary. The following currency pairs tend to be temperamental: GBP, CHF, and JPY among the majors and AUD, CAD, NZD, and ZAR among the commodity currencies.
- Major New Information: Unexpected information from the top levels of decision-making such as interest rate changes or policy shifts are key pieces which may merit an extension in take-profit targets.
- Thin Liquidity: Reduced liquidity often transpires during national or seasonal holidays. Price movements may be more extensive at these times because there are fewer people trading to absorb the price shocks.
- Technical Level Breaks: Fibonacci retracement levels of major recent directional moves, trend lines dating back several months or years, and recent extreme highs and lows can cause major price movements.