Our Favorite Way To Set Take Profit Orders/Levels Typically, most traders have no idea how or where to set their take profit orders on any given trade. Most inexperienced traders will choose a risk/reward ratio and set their take profit based on a specific ratio. For example. The trader defines where their stop loss order will be, then drags their take profit up until it says "Risk/Reward = 3". Determining your take profit order/level based on this provides the trader with no increase in profitability/edge, and we call this gambling.
Generally, the first thing the trader should be doing is setting their stop loss prior to determining the take profit. The stop loss is one of the most important factors to consider that can have a dramatic affect on how profitable your strategy will be. After the stop loss has been determined, assuming we want to go long, the first thing to identify that will aid in determining the take profit price/order is, identifying where key levels of resistance are as well as pivots.
We have found that in the markets, one should never assume the market will break past a specific resistance/pivot. Although it may happen, your take profit should never be at the mercy of the pivot blocking price. With that being said, the trader should ensure their take profit is not beyond the nearest pivot/resistance to increase profitability. For example, if price just broke resistance and is retracing back down for a retest as support, to get the highest profitability/success rate, we recommend to ensure your take profit is slightly below the pivot just above the support, which the price is retracing from. A trader could attempt to take the trade further beyond the first initial pivot/resistance, to increase net profit for the given trade, however, the trader needs to understand that doing this requires close monitoring of the trade to identify rejections at the pivot. Based on our research/back-testing, it is a viable option for traders to try to extend the take profit beyond the first pivot/resistance as long as the trader is monitoring the trade closely. Some of the things that the trader should be looking out for is, a bearish rejection off the first pivot, signifying that price may return to the support/entry price. Based on our research, roughly 39+% of the time, the trader can expect the first pivot/resistance to breakout with high volume and a large candle, which can then be used to extend the take profit if managed properly.
Ensuring that both your take profit and stop loss are placed/managed methodically will greatly increase profitability based on statistics.
