Take Profit

A predefined price where a winning trade is closed automatically.

Also called: tp · profit target · target

In plain language

A take profit is a resting limit order at the level where you believe the move is likely to run out. It removes the decision from the moment when greed and fear are loudest.

Its placement should be based on where price is genuinely likely to stall — a prior high, a range boundary, a measured move — rather than on a round profit number.

The target, paired with your stop, defines the trade’s risk/reward ratio. A target too close to the entry can make an otherwise good setup mathematically not worth taking.

Worked through

A target set at resistance versus a target set at a round number

Entry: $27.40
Stop: $26.60 (−$0.80)
Target at prior high $29.00: +$1.60 = 1:2
Target at $30.00: +$2.60 = 1:3.25

The second target has the better ratio on paper, and it is the worse trade. $29.00 is where the stock turned back last time, so it is where sellers are waiting; $30.00 is a number that looks tidy on a screen. Moving the target through known resistance to improve the ratio does not improve the odds of getting there — it just moves the exit past the place the move is likely to stop.

This is the most common way a risk/reward ratio gets manufactured. The ratio is arithmetic and will report whatever you feed it, so a target chosen to make 1:3 appear will produce 1:3 and a lower hit rate that no spreadsheet shows.

The discipline is to set the target where price is plausibly going, read whatever ratio that produces, and then decide whether to take the trade. If the honest ratio is 1:1.2, the answer is usually to pass — not to move the target until the number looks acceptable.

Costs land on this side hardest. Spread and commission come out of the winning leg, so a thin target loses a larger share of itself than a distant one does.

Seen on a chart

Reward is measured entry to target, risk is measured entry to stop. Here the reward band is three times the height of the risk band — a 1:3 trade.

Why it matters

The distance to your target relative to your stop determines what win rate you need to break even. Setting targets carelessly means taking trades whose math never worked.

Common mistakes

Picking a target because it is a round dollar amount rather than a real level.
Setting targets so far away that they are almost never reached.
Taking profit early on winners while holding losers to the full stop, which quietly inverts your risk/reward.