In forex trading, TP is a short form of ‘Take Profit’. It is not a strategy that you can trade but it indicates the price where you will be taking your first profit (TP1) your second profit (TP2) and your third (TP3).
If you are a trader you have come across the terms “TP1” “TP2” and “TP3” more especially if you are a swing trader. These refer to “take profit 1”, “take profit 2” and “take profit 3”, respectively. In simple terms, TP1, TP2, and TP3 are price levels that traders set in advance to exit a trade and take profits.
When traders enter a trade, they usually have a target price in mind where they would like to exit the trade and make a profit. This target price is known as the “take profit” level. Traders can set multiple take-profit levels, with TP1 being the first level TP2 being the second level and TP3 being the third level.
When a Forex Trader enters the market he /she will have :
- Entry price
- SL (stop loss)
- TP (Take profit) or his/her target.
For instance:
How to trade TP1, TP2, and TP3
The easiest way to trade them on any platform is:
1 ) Take three trades, each with 50% of the position size you intended to use
2) Set the same stop loss on both
3) Set first trade with TP1, set the second trade with TP2 and the third trade with TP3.
Of course, you don’t have to split the position size 50%/50%, you may want to allocate more to the one with TP1 but that depends on your equity. However, remember to risk only 2% of your equity per trade, you can use our Position Size Calculator to calculate how much you risk per trade.
Advantages of TP1, TP2 and TP3
Traders in the forex market often utilize different take-profits (TP) levels, such as TP1 and TP2, to enhance their trading strategies. TP1 is typically established close to the current market price, offering a more easily attainable goal. In contrast, TP2 is set at a price level farther from the current market price and serves as a means to maximize potential profits.
Employing multiple take profit levels is a widespread approach among forex traders, presenting several advantages. A primary benefit lies in the ability to secure profits at various price points, allowing traders to mitigate risks and safeguard earnings if the market takes an unfavorable turn.
Another advantage of incorporating TP1 and TP2 is the opportunity to capitalize on market fluctuations. By defining multiple take-profit levels, traders can capture profits at different points, even if the market initially moves in their favor.
However, it\’s crucial to emphasize that relying solely on multiple take-profit levels does not guarantee success in forex trading. Traders must complement this approach with a robust trading strategy and a well-structured risk management plan to make informed decisions.
Beyond TP1 and TP2, traders may explore alternative exit strategies, such as trailing stop-loss orders or manual trade closures. Trailing stop-loss orders enable traders to set a dynamic stop-loss level that adjusts with market movements, while manual closures provide traders the flexibility to exit a trade at their discretion.
Finally, TP1, TP2, and TP3 are integral concepts in forex trading, representing different take-profit levels. These levels empower traders to secure profits at diverse price points, effectively managing risks and optimizing potential returns. Nevertheless, success in forex trading hinges on the implementation of a solid trading strategy and a comprehensive risk management plan.
