3 Ways To Get More Profit From Your Trades

I’ve been doing a bit of research lately on the different ways professional retail traders select profit targets.

One of the most frequently touted adages for staying profitable in trading is: “Let profits run!”

There will come a point in your trading when you will no longer want to just be profitable, but also get the most out of your trades. Looking for more trades or trying to be available for more sessions aren’t always feasible. One can lead to over-trading and the other is both mentally draining and time-consuming. Instead, another way to build up one’s returns is to seek to increase your risk-to-reward ratio.

However, like many easy-to-repeat phrases of advice in the trading world (among others like “buy the rumor, sell the fact” or “buy low, sell high”), it’s hard to apply this wisdom without considering the context of your strategy.

If you’re a scalper or you trade during the Asia session, “Let profits run!” can sometimes be poor advice. Or expectations for “Let profits run” could mean capturing 100 pips over a week versus 10 pips for a Tokyo scalp.

In order to make the most of your take-profit targets, you’ll need to think deeply about your trading style, your trading goals, and then find a take-profit approach that works best for you.

While there are many other ways to seek more pips out of the market, here are three unique methods that you can apply to your trading.

3 Ways to Get More Profit From Your Trades

1) Backtest Your Strategy To Determine Appropriate R:R

Who is this best for: Algorithmic traders, mechanical strategies, scalping strategies

While past performance does not guarantee future outcomes, often history repeats itself. Since market moves are motivated by human emotions, players in the markets tend to behave similarly over time.

Especially if your strategy has clear-cut rules, you can readily backtest its performance and measure how far price tends to move before going against your trade. I like to do this with the mechanical strategies I use to trade. To compile data for this analysis, I’ll track the most pips moved towards and against my trade in a spreadsheet, as seen below.

 

how to backtest forex

Push implies the farthest distance the trade would go in my favor and the pull represents the movement that would go against the trade before turning towards profit again. “1.5 x 1.5” ended up being “1.5 ATR as a stop-loss and 1.4 multiplied by the stop loss for take profit.

Such data can be revealing. You can apply different risk-to-reward variables to see which results in the highest return over a period of time. Perhaps, even contrary to the advice to “Let profits run,” you may find that it pays to have a tighter take-profit target, with a R:R like 1:1 to 1:1.5. I find this to be particularly true for algorithmic trades or trades that occur on shorter time frames (5m, 1m, etc.), when trades are taken with any given setup, without higher time-frame analysis.

The more data, the better. Test it against different R:R possibilities, such as 1:2, 1:2.2, 1:4, or even 1:1.4. However, as with any backtesting activity, the results need to be taken with a grain of salt. Slippages, slow entry orders, and other small tweaks or mistakes can affect these outcomes. Therefore, I like to aim for a little less of a target than what my results tell me.

2) Using Multiple Targets: Using Both a Fixed and a Dynamic Profit Target

Who is this best for: Trend traders, price action traders

Many traders will split their take-profit targets over multiple different exits. This is probably one of the most widely used methods to let profits run while taking some profit along the way. While you want to get as much as you can out of a trade, the farther price moves, the increase in likelihood it will eventually turn around. Even with the best of analysis, picking tops and bottoms of trends can be excruciatingly difficult. Instead, it’s better to use an exit strategy that is malleable to a variety of outcomes.

An example of using both a fixed and dynamic profit target can look like this:

Instead of one target, use two take-profit targets.

The first can be a hard risk-to-reward ratio, such as 1:2, where you are profiting twice as much as you risk. At this price point you can decide to exit half of your position.

The second take-profit target can be an indicator or price action pattern that signals a reversal. One example of this is to let price continue until it pulls back and crosses a 21-ema. Another example is to exit when you see a bearish/bullish pinbar going against you on a higher time frame, like the 4h if you took your trade on a 1H. You can research different ways to spot signs that a trend is about to end if you’re using this to get as much as you can out of a trend strategy.

multiple take profit targets forex

3) Apply a Trailing Stop

Who is this best for: Trend Traders, day traders, swing traders

There are traders out there who only use trailing stops for a take-profit target, they won’t put a defined target on the chart, but instead let the market’s momentum decide where the appropriate profit lies. This approach can help with minimizing losses and drawdowns but sometimes at the cost of a higher return. The benefit in using this approach is that it’s agile and sets a target that more closely matches what the market is willing to give.

There are a few ways you can use trailing stops.

One way is to set it as an automatic stop-loss that follows the movement in ticks. If price goes down after a pre-defined level (such as with every 10 pips moved), the stop loss follows as well. This works better with wider stops, as often used in swing trading, and less volatile markets, as too close of a stop can take out a trade early.

Another way is to move your stop below the low/high of every 3 bars – this works best with trend trading.

Again, you can research trailing stops more deeply, as there are many methods out there.

Conclusion

No one exit strategy will work for all trading plans, time frames, or trading sessions. Backtesting, demo trading, and small positions can all be used to test the efficacy of a profit target as it relates to your strategy. Be sure to put the time and work in to experiment with your trading, as you’ll learn and build your skills by performing these exercises!

Wishing you the best of strength and luck in the markets!