Generally when you are using two profit targets, right? Okay, it’s because you want to firstly protect the capital that you risk in this trade.

That’s why you have a TP1, to make sure you protect those capital first. Then a TP2 mainly is one to maximize your returns. Okay?

So, there’s two ways to go about doing it.

You can either set TP1 at a certain R-multiples or a certain key resistance. Then you get out of it, but assuming that it’s not showing you signs that it is turning around yet. It’s still moving in your direction then you might want to get out of the other half or a certain percentage of the balance of your position, either add a higher TP or you can actually use a trailing stop to do it.

So, the more common way I’ve seen is that traders will set a TP target for, let’s say, half the position. Then once it hits there, they will get out, they already took back the original capital amount. Then the balance amount is they are using markets money to try to maximize their returns because then they will set a trailing stop and then just let it continue to go higher. So, this is actually one technique that you can use to drastically increase your reward to risk ratio for your profitable trades.

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Philip Teo

Founder & CEO at Traderwave Pte Ltd
Philip Teo is an entrepreneur, speaker and trading coach who specialises in the field of Technical Analysis of the financial markets. He is currently the Founder and CEO of Traderwave Pte Ltd, a financial technology company that offers a web charting application to global traders. He has conducted many trading seminars and appeared on national television before. He is also currently an official speaker and trainer with SGX Academy. Learn more about him at his Google+ Profile, LinkedIn Profile and Facebook Profile

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