Take profit

A take profit is a limit order that closes your position automatically when price reaches your profit target.

Setting a take profit forces you to define your exit before you enter, and therefore to work out your risk-reward ratio. You often place it just before resistance for a buy, or support for a sell, rather than right on it.

It prevents two common mistakes: cutting too early for fear of giving back gains, or staying in too long out of greed until the profit disappears.

Not every trader uses one. Some prefer to scale out in several steps, or let it run with a trailing stop. Either way, the exit rule must be written in your plan, not improvised.

The full lessonOrder types: market, limit, stop, OCO and trailing stopMarket, limit, stop, stop-limit, OCO, trailing stop, take profit and stop loss orders: how each trading order type works and when you should use each one.