5 best take profits indicators

Indicators are often bunched together by how they take information from charts – are they reading trends, volatility, momentum? It’s important to know that stuff, so we can get a good balance of data.

But what about what the indicators are DOING for us? In the process of trading, we need indicators to take on different jobs.

Are they triggering a signal?

Confirming a signal?

Giving us a trailing stop?

Warning us to close?

Telling us to take profits now?

Are you clear what job your indicator is doing? Is it really suited to what you’re asking of it?

Just recently I’ve been exploring the best indicators for each stage of our trades. Last week, we looked at stop-level indicators. And this week, we’re going to explore the flipside: where to take profits.

Profit-taking is the most-forgotten part of trades. Often traders spend all their time looking at triggers and how their indicators will get them into the best moves, while ignore the (arguably more important) part of how we exit – hopefully with a profit, but if not, with minimal damage.

Take profits indicators 1: Fibonacci extensions

Fibonacci levels are often thought of in terms of retracements, but they can work just as well for extensions.

They are now so easy to add to your chart – you can just select them in the Tools menu. Choose the recent high–low swing that you’re working off (this is where the discretion comes in), and the levels will pop up for you.

This is shown on my preferred broker, Trade Nation.

These Fib extensions can make really sensible levels at which to take your profits if you’re swing trading, or picking up trend-following signals on pullbacks.

Take profits indicator 2: Average True Range

While sometimes markets will shoot off rapidly in a trend, for most of the time prices move roughly the same number of pips in a day. There will be volatile periods, when prices move more … and quiet periods, when they move less.

Looking at an indicator like the ATR (average true range), will give us an average number of pips the price moves over the past (normally 14) periods. Knowing what the ATR is for the daily chart of the instrument you’re trading is a very valuable little gem of information!

Add to this information the amount of time you expect your trade to be open for – are you looking at several weeks … several hours … or somewhere in between?

Now you can use this knowledge to position both a profit target and a stop level.

Take profits indicator 3: Stochastics

Stochastics, or any momentum indicator, can be a good early-warning signal to tell us that momentum has dropped off and it’s time to jump out of a move.

Watching for these tipping points is a great way to get out of trends in a timely way, without waiting for them to turn.

Momentum indicators can also be used for profit-taking when the price reaches overbought or oversold territory. This means that a buy trade would be closed once the stochastics hit 80; and a sell trade would be closed once the stochastics hit 20. I find this method a bit too blunt, and trends can continue to run long into overbought and oversold territory.

Take profits indicator 4: Pivot points

There are certain places on a price chart that act like magnets to prices. These are key levels of support and resistance, which will be littered with traders buy and sell orders.

I’m just looking at indicators today, so won’t go into round numbers and S&R levels, but you can find out more about these magnetic levels HERE.

Pivot points are exactly these kinds of magnetic levels which can be drawn onto your charts every day. If you’re not familiar with pivot points, they are levels calculated from the previous day’s high, low and close prices. They usually take the form of a central pivot point, plus two resistance levels above it, and two support levels below it.

Daily pivot points will look something like this …

Note the magnetic pulling power of the central pivot point for much of the day. When the price does break free of it, it goes on to form another consolidation pattern around the next pivot level.

By using these levels when positioning our profit targets, we can harness the pulling power of the pivot points.

Take profits indicator 5: Moving averages

Another profit-taking signal can be a moving average crossover, or when price moves through a moving average.

Unlike the Stochastics, the moving average is a lagging indicator. It’s less sensitive than Stochastics, which means it’s less likely to give false signals, but it will tell you a trend is over AFTER the fact, which inevitably means giving money back.

What about trailing stops for profit-taking?

Trailing stops are a valid way to lock in profits and close out trades – both for profits or for reduced losses. And there are some really useful indicators to help us do this – as I showed last week.

However, I don’t like to rely on a trailing stop to take profits – I prefer to combine my trailing stop with a smart profit target.

Finally, as ever, if you have any suggestions for profit-taking indicators that work for you, please share your success stories in the comments below …

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