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EP147A How do I set realistic profit targets?
Setting realistic profit targets is essential for long-term success in forex trading. Unrealistic expectations can lead to overtrading, poor risk management, and emotional decision-making. A well-defined profit target helps traders lock in gains and maintain consistency. Below are key steps to setting achievable profit targets.
1. Understand Risk-to-Reward Ratio (RRR)
A realistic profit target should be based on a Risk-to-Reward Ratio (RRR). This ratio compares the potential profit of a trade to its potential loss.
Example of a Good RRR:
- If you risk 50 pips per trade and aim for 100 pips profit, your RRR is 1:2 (for every $1 risked, you aim to make $2).
- A 1:1.5 or higher RRR is recommended to ensure that your winning trades cover your losses.
🔹 Tip: Avoid extremely high RRRs like 1:10 unless market conditions strongly support them, as they are unlikely to hit frequently.
Proven techniques and a tutor who has traded for over 30 years
Forexmentorpro.com, founded in 2008 is a low cost, high value training website catering for new, through to intermediate level forex traders. But more than this – and this is what really makes them different…their mentors explain in advance what they are intending to trade and why.
They are also adding live, weekly, interactive training sessions with Marc, fellow mentors and occasional guest presenters like trading psychology expert Rich Friesen (at no extra cost). All this is backed by a 30 day money back guarantee.
2. Use Support and Resistance Levels
- Support levels act as price floors where the market may bounce upward.
- Resistance levels act as price ceilings where the market may reverse downward.
- Set profit targets just before strong support/resistance levels to increase the chances of hitting them.
Example:
- If EUR/USD is trading at 1.1050, with strong resistance at 1.1200, a realistic profit target would be 1.1180 (slightly below resistance).
3. Consider Market Volatility (ATR Indicator)
The Average True Range (ATR) measures market volatility and helps set dynamic profit targets.
- A high ATR suggests wider profit targets due to larger price swings.
- A low ATR suggests smaller profit targets due to lower volatility.
Example:
If the ATR for GBP/USD is 80 pips, a profit target of 60–80 pips is reasonable.
4. Follow Trend and Momentum Indicators
- In strong trends, traders can extend profit targets by trailing their stops.
- In sideways markets, profit targets should be smaller and within range-bound levels.
- Indicators like MACD, RSI, and Moving Averages help confirm momentum and whether a target is realistic.
🔹 Example:
If EUR/USD is in a strong uptrend and the MACD is still bullish, a trader might set a higher profit target than usual.
Proven techniques and a tutor who has traded for over 30 years
Forexmentorpro.com, founded in 2008 is a low cost, high value training website catering for new, through to intermediate level forex traders. But more than this – and this is what really makes them different…their mentors explain in advance what they are intending to trade and why.
They are also adding live, weekly, interactive training sessions with Marc, fellow mentors and occasional guest presenters like trading psychology expert Rich Friesen (at no extra cost). All this is backed by a 30 day money back guarantee.
5. Adjust for News and Economic Events
- Major events like interest rate decisions and NFP reports can cause large price moves.
- Traders should adjust profit targets based on expected volatility before and after such events.
🔹 Example:
Before an FOMC statement, traders may set a wider profit target due to potential large price swings.
Conclusion
Setting realistic profit targets in forex requires balancing risk, volatility, support/resistance levels, and trend strength. By following a structured approach, traders can improve consistency, avoid emotional trading, and maximize returns.
Would you like help setting profit targets for a specific trading strategy? 🚀