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Chapter 5, Part V. Order types in FOREX Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 15, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Special case of Limit order type – Take Profit Order (T/P)


    Although we talk about Limit orders in context of opening a position, i.e. look at them as entry orders, a limit order also could be used for closing the position. As you can see from the name of this order “Take profit” it is used for closing a profitable position, when and if you intend to fix profit. Obviously, that if you have Long position (i.e. you’ve initially bought), you may fix and get any profit, only if current price is above your initial entry point. Hence, Take Profit order will typically be somewhere above your entry point – you want to sell at higher price to fix profit.

    If instead, you have Short position (i.e. you’ve initially sold), you may fix and get any profit, only if current price is below your initial entry point. Consequently, your want to have yourTake Profit order be below your entry point – you want to buy at lower price, i.e. cheaper.



    In general, you can see that a “Take Profit” order has the same nature as a simple Limit order. It also has to be placed at better price than the current one. The one difference is that Take Profit uses for closing the position, that has profit currently and that you’ve initially opened, while simple Limit order uses for initial enter. Indeed, how you can close something with T/P Order, if you’ve not opened anything yet. When market will reach T/P order that you have placed – software will close your position and fix the profit. We might say that Take Profit order always links to the existing position, while simple Limit order can exist as itself, without any position that has been initially pre-opened.
     
    Nachoga and fran alvarez like this.
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