What is Take Profit in FX?

Take Profit (TP) refers to securing profits. On platforms like MT4 and MT5, it’s displayed as "TP."
Securing current profits with Take Profit is one of the toughest decisions in FX trading. In this article, we’ll explain the meaning and method of setting Take Profit in detail.

Take Profit is a feature to secure unrealized profits from an active position.

For example, if you enter a long position and the closing price is higher than the entry price, unrealized profit arises. Conversely, in a short position, a lower closing price than the entry price generates profit. Take Profit is also known as "TP" in MT4 and MT5.

Take a look at the example image to understand what is Take Profit. If you entered a buy trade near the first red circle and prices rose significantly afterward, you’d have an unrealized profit. Once the price reaches a satisfactory level, you may consider taking profits. When the price reached the Take Profit line near the second red circle, the order executed, securing the profit.

Stop Loss secures a set limit on losses, serving as a crucial decision tool in trading. Continuing to hold a position with an unrealized loss can lead to further risk, potentially exhausting your funds. Setting a predefined Stop Loss rule, such as a 10% limit on account balance, can be beneficial.

In the example image, a buy entry was made based on a long-tailed pin bar near the red circle. After an initial rise, the price gradually dropped and hit the red Stop Loss line, executing the order and finalizing the loss.

Here’s how to set up Take Profit and Stop Loss in MT5 mobile. Follow the instructions carefully for correct TP/SL setup.

Setting Take Profit
Open the MT5 app, tap “Trade” in the bottom center of the screen, and select the active position to bring up the Take Profit settings screen.

Alternatively, open “Charts” from the bottom, tap the clock icon on the top right, press "TP" to set the Take Profit line, and confirm to proceed.

Setting Stop Loss
Open the MT5 app, tap “Trade,” select the active position, and the Stop Loss settings screen will appear.

You can also open “Charts,” tap the clock icon, press "SL" to set the Stop Loss line, and confirm.

Here’s a guide on how to set up Take Profit and Stop Loss in MT5 (PC Version). The method is very similar to the mobile version.

Setting Take Profit
First, click on "New Order" to open the order screen. In the order screen (as shown in the image), specify the "Take Profit" price, then select either a buy or sell order. Your Take Profit is now set. Once the specified price is reached, the position will automatically close.

The Take Profit price is also displayed on the order screen chart, making it visually easy to track. In the example, the buy price is 152.364, with a Take Profit set at 152.369

Setting Stop Loss
Similar to Take Profit, you can set a Stop Loss by displaying the order screen from "New Order." After specifying the "Stop Loss" price and choosing a buy or sell order, your Stop Loss is set.

While a Stop Loss confirms a loss, it helps minimize losses. In the example, the sell price is 152.357, with a Stop Loss set at 152.383.

Let’s discuss the advantages and disadvantages of using Take Profit and Stop Loss orders in FX trading.

Advantages of Take Profit and Stop Loss Orders

• Efficient use of time
• Reduces psychological stress

Efficient Use of Time
Take Profit and Stop Loss orders help automate decisions that would otherwise require constant monitoring of profit/loss levels. This allows traders to focus on other trades or enjoy other activities while the system handles the orders.

Reduces Psychological Stress
Trading in FX requires rational, opportunistic buy/sell actions. Due to the psychological tendency to act irrationally, Take Profit and Stop Loss orders help reduce “overtrading” anxiety, allowing traders to avoid making impulsive decisions.

Disadvantages of Take Profit and Stop Loss Orders:

• Challenging to set prices
• Limited real-time analysis

Challenging to Set Prices
Determining optimal Take Profit or Stop Loss levels can be difficult. While entry points are often determined by chart patterns and price action, knowing when to secure profits or cut losses is uncertain. However, technical analysis, like Dow Theory, can offer target levels in the market.

Limited Real-Time Analysis
Automated orders prevent real-time price action analysis. Sometimes, a Stop Loss executes prematurely, missing out on potential recovery. As a solution, you can enable notifications in MT4/MT5 when the price approaches Take Profit/Stop Loss levels, allowing you to make discretionary adjustments.

Take Profit orders automatically secure profits when the specified price is reached, while Stop Loss orders automatically cut losses. Both are essential for FX trading efficiency.

Even without constant chart monitoring, Take Profit and Stop Loss orders can streamline FX trading. Additionally, over-monitoring can increase stress and lead to “overtrading.”

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