In trading, there is a common debate over whether you should always let your trades hit take profit (TP) levels, or if you should consider exiting early based on market conditions. The idea of letting a trade run until it hits your TP level is rooted in the belief that sticking to your strategy ensures consistency and discipline. However, the reality is more nuanced, and the decision of whether to let trades hit take profit is not always as straightforward as it may seem.

While there are benefits to letting your trades reach their pre-determined take profit levels, there are also times when adjusting or exiting early may be the better choice. Ultimately, it depends on your strategy, market conditions, and risk management. Let’s explore the pros and cons of letting trades hit take profit and the factors that should influence this decision.

Why Letting Trades Hit Take Profit Can Be Beneficial

1. Consistency with Your Strategy

• One of the key principles in trading is following a strategy. When you set a take profit level at the time of entry, you’re essentially sticking to a plan that reflects your market analysis. By letting trades reach your TP, you are following your systematic approach and avoiding the temptation to second guess the market.
• This approach ensures consistency in your trading. A well-defined strategy will likely have a balance of entry and exit points, and letting the trade run until TP is a part of executing your plan effectively. It also prevents emotional trading, where fear or greed might cause you to exit prematurely, potentially missing out on more profits.

2. Avoiding Emotional Decision-Making

• Emotional control is critical in trading. If you manually exit a trade before it hits the TP level due to fear or impatience, you may risk letting emotions influence your decision. Often, traders exit early because they feel anxious as the trade nears the TP or because they see small profits and feel the need to lock them in.
• By letting your trades hit TP levels, you reduce the influence of emotions like fear of losing profits or greed. This enables you to follow your pre-set rules, leading to more disciplined and objective decision-making.

3. Maximising Potential Profits

• When you allow your trades to reach their TP levels, you let the trade develop and potentially reach its full profit potential. Markets are volatile, and price can often continue moving in your favour after you hit an initial profit target. By not closing early, you give yourself the chance to capture a larger portion of the market move.
• This approach can be particularly beneficial when trading trends, where the price may move significantly in your favour over a period of time. Letting the trade run allows you to capture the larger trend, rather than cutting profits short.

4. Taking Emotion Out of the Equation

• By establishing a take profit level in advance, you remove the need for real-time decisions. If you’re consistently managing trades manually, you may face moments of indecision or anxiety, especially when the market becomes volatile or reaches psychological levels. Pre-setting a TP allows you to avoid making last-minute adjustments based on emotions, letting you focus on sticking to your trading plan.

Why You Shouldn’t Always Let Trades Hit Take Profit

1. Market Conditions Can Change

• While you may have set a TP level based on your initial analysis, market conditions are always fluid. Sudden news events, volatility spikes, or unexpected changes in sentiment can cause the market to reverse before reaching your TP.
• If you stick rigidly to your TP without considering changes in the market, you may risk turning a winning trade into a losing trade. In such cases, adjusting your TP level or exiting manually can help you lock in profits before the market turns against you.

2. Profit-Taking at Key Levels

• Often, price will approach key technical levels, such as resistance or support, where the price is more likely to reverse. If your TP level is close to these levels, it might be a good idea to exit early and lock in profits before the market potentially reverses.
• In this case, manually exiting when the price reaches a key level can be a wise decision. If your analysis shows that the market is struggling to break through resistance, for example, it might make sense to take profits early, especially if you don’t have the confidence that the price will break through the level.

3. Trailing Stops as an Alternative

• Instead of always letting your trade hit TP, trailing stops can be an effective alternative for letting profits run. A trailing stop allows you to capture profits while still giving the trade room to breathe if the market continues to move in your favour.
• By using a trailing stop, you can lock in profits as the price moves in your direction, while still allowing for further upside. This approach can provide the best of both worlds: it gives you the potential to catch a larger move while ensuring that you don’t give back too much of your profits if the market reverses.

4. Adapting to Changing Price Action

• Sometimes the market shows signs of weakening momentum or price action starts to stall near your TP level. If you notice signs that the market is losing steam or if price starts moving sideways after a strong rally, it may be prudent to adjust your TP or exit the trade early.
• Monitoring price action closely is key to adapting to the current market conditions. If you see signs of a retracement or stalling, exiting early can help you preserve profits rather than letting the trade potentially reverse against you.

5. Avoiding Overextension

• If the price has already moved significantly in your favour, it might be wise to take some profits before the price potentially overextends or enters a period of consolidation. Sometimes, greed can drive traders to hold out for an ideal target, only to find that the market reverses unexpectedly before hitting the TP.
• Taking partial profits or adjusting your TP can help you lock in gains while still allowing the trade some flexibility to move further in your favour.

How to Find the Right Balance Between Letting Your Trades Hit TP and Exiting Early

1. Use a Flexible Trading Plan

• A flexible trading plan is key to adapting to market conditions. While it’s important to set a take profit level based on your analysis, it’s also essential to remain flexible and make adjustments as necessary.
• If the market conditions change, adjust your TP accordingly, or consider partial exits or trailing stops to allow for further profit while protecting your gains.

2. Focus on Risk-Reward

• A strong risk-reward ratio will help you determine your take profit levels and stay disciplined about your trades. While it’s tempting to exit early after a quick profit, it’s important to assess whether you’re still within your desired risk-reward ratio.
• Make sure your take profit level aligns with your long-term trading goals and the overall market structure. If you’re trading a trend, for example, your TP should be set with the potential of the trend in mind.

3. Be Aware of Market Sentiment and Fundamentals

• If your strategy involves following technical setups, be aware of any fundamental factors or market sentiment shifts that could impact the market. Sometimes, news events or economic data releases can cause price to move more quickly than anticipated.
• In such cases, you may need to exit early or adjust your TP based on the new information that becomes available.

Conclusion: Letting Trades Hit Take Profit – It’s About Balance

While letting your trades hit take profit levels can be a disciplined approach that ensures consistency and prevents emotional decision-making, it’s not always the best option for every situation. A professional trader knows when to stick to their plan and when to adapt to changing market conditions.

The key to successful trading is finding a balance between letting trades run and protecting profits when necessary. By using tools like trailing stops, partial profit-taking, and adjusting your strategy based on market conditions, you can maximize your profits while maintaining a disciplined approach.

If you want to refine your strategy, risk management, and trade psychology, check out our Trading Courses. Our expert-led courses will help you develop the skills necessary to find the right balance in your trades and become a more profitable and consistent trader.