Definition #
The take profit distance is basically how much you expect to earn on a trade from the point you enter the market to the point at which you want it to automatically close at a profit. It’s the point at which you decide to close the trade at a profit.
Interpretation #
Setting a take profit distance is an important part of risk management and trade planning:
- Lock in profits: Allows you to automate profit-taking once the price has reached a favorable level.
- Define the potential reward: This helps you visualize the target profit of the trade before opening it.
- Establishing the risk/reward ratio: By comparing the take profit distance with the stop loss distance, you can assess whether the trade has a good risk/reward ratio.
- Plan your exit strategy: Define in advance when to close the trade with a profit.
Example #
