Take ProfitTP
A take profit is a pre-set exit — usually a limit order — that closes a winning trade automatically once the price reaches your target.
Traders spend a lot of time deciding where to get in and where to get out if they are wrong. Deciding where to get out if they are right is just as important, and harder emotionally: greed says hold on, fear says grab the gain. A take profit settles the question in advance. This entry covers how take-profit orders work, how to choose a target, and the trade-offs between fixed targets, scaling out and trailing exits.
- Category
- Risk Management
- Reading time
- 7 min
- Also called
- Take-profit order, Profit target, Target
- Updated
A take profit in plain words
You buy a share at $40 because you think it can reach $46. You tell your broker in advance: if the price reaches $46, sell. If it gets there, your profit is locked in without you watching the screen.
For a long position the take profit sits above the entry; for a short position it sits below. It is the partner of the stop loss: one decides the exit if you are wrong, the other the exit if you are right.
How a take profit works, step by step
Choose a realistic target
Look for the price the market can plausibly reach — often the next resistance level for a long, or support for a short — rather than a round number you would like to see.
Check it against your risk
Compare the distance to the target with the distance to your stop. Risking $3 to make $6 is a 1:2 risk-to-reward ratio.
Place it as a limit order
A take profit for a long is normally a sell limit order at the target, which can only execute at that price or higher.1
Link it to the stop
Many brokers let you place the take profit and the stop together as a one-cancels-the-other (OCO) or “bracket” order: when one fills, the other is cancelled automatically.2
Let the market decide
If the price reaches the target, the limit order can fill and the profit is realised. Because it is a limit order, a brief touch does not guarantee a fill.1
Worked examples
Example 1 — A bracket order that reaches its target
ProfitYou buy 100 shares at $40, with a stop at $37 and a take profit at $46, placed together as an OCO order.
| Risk per share ($40 − $37) | $3 |
| Reward per share ($46 − $40) | $6 |
| Risk-to-reward | 1:2 |
| Profit when the target fills (100 × $6) | +$600.00 |
| Stop order after the target fills | Cancelled |
Once the take profit filled, the linked stop was cancelled, so no stray order was left behind to open a new position by accident.
Example 2 — Scaling out
Scaling outSame trade, but you sell half at $46 and leave the other half with the stop moved up to the entry price, $40. The price later reaches $50 and you sell the rest there.
| 50 shares sold at $46 (+$6) | +$300.00 |
| 50 shares sold at $50 (+$10) | +$500.00 |
| Total | +$800.00 |
| Had the price fallen back to $40 instead | +$300.00 |
Scaling out trades some certainty for some upside. It made more here, but less than a full exit at $46 would have if the price had turned straight back.
Example 3 — A target that is too far
LossWanting a 1:5 ratio, you set the target at $55 instead. The price rises to $47, stalls at resistance and falls back to your stop at $37.
| Best open profit (100 × $7) | +$700.00 |
| Final result at the stop | −$300.00 |
| Swing from best to final | $1,000.00 |
A target that ignores the chart turns winners into losers. The ratio looked better on paper; the realised result was worse.
A bracket order: two exits, placed together
Try it: where would your take profit be?
Enter your entry, stop and the multiple of your risk you are aiming for. Put the stop above the entry for a short. The calculation runs in your browser.
| Risk per share | $3.00 |
| Take-profit price (long) | $46.00 |
| Profit if the target fills | +$600.00 |
| Loss if the stop fills | −$300.00 |
Before using a target, ask whether the market can realistically reach $46.00 — the nearest resistance (for a long) matters more than a round multiple.
Ways to take profit
| Aspect | How it works | Strength | Weakness |
|---|---|---|---|
| Fixed target | Sell limit at a set price | Simple, unemotional | Caps the gain if the trend continues |
| Scaling out | Sell in parts at several levels | Banks some profit, keeps some upside | More decisions; smaller full-size wins |
| Trailing stop | A stop that follows the price at a set distance1 | Lets strong trends run | Gives back part of the gain when it triggers |
| Time-based exit | Close after a set period | Stops capital sitting idle | Ignores where the price is |
Why traders use take-profit orders
To lock in planned gains
A take profit converts an open, unrealised gain into a realised one at a price you chose in calm conditions.
To remove emotion from exits
Greed and fear both distort exit decisions. A pre-set order executes without negotiation. See Fear and Greed.
To trade without watching
Linked with a stop as a bracket order, a take profit lets a trade run its course while you are away.2
To keep the plan measurable
Defined targets make it possible to judge a strategy by its realised risk-to-reward ratio.
Advantages and disadvantages
Advantages
Disadvantages
- Can exit before a much larger move.
- May not fill if the price only touches the target briefly.
- Targets placed without regard to the chart can be unrealistic.
- Unlinked exit orders can be left behind after one fills.
Going deeper
Read as far as you need. Each level builds on the one before it.
Set the target before you enter
Beginner
Write down entry, stop and target together. If you cannot name a sensible target, you cannot judge whether the trade is worth its risk.
Targets from structure and volatility
Intermediate
Common targets are the next support or resistance level, a previous swing high or low, or a multiple of the Average True Range. Placing a sell target just below an obvious resistance improves the chance of a fill, because many orders cluster at the level itself.
If the realistic target gives a poor ratio against your stop, skipping the trade is usually better than stretching the target.
Exit rules change the whole strategy
Advanced
Fixed targets raise the win rate and cap the average win; trailing exits lower the win rate and allow occasional large wins. Neither is better in general — the right choice is the one that gives a positive Expectancy in testing over many trades.
Conditional orders such as one-triggers-a-one-cancels-the-other let you enter and place both exits in a single instruction.3 Check how your broker handles the pair in fast markets and whether both legs share the same time in force.
Common mistakes
Moving the target further away once in profit
Raising the target mid-trade without new information is greed in disguise and often ends with the gain disappearing.
Taking profit far too early
Closing at the first small gain while letting losers run produces small wins and big losses — the opposite of what works. See Loss Aversion.
Leaving orphan orders
If the target fills and the stop is not cancelled, the stop can later open an unintended position. Use OCO orders or cancel manually.
Ignoring the spread and costs
On short-term trades, spreads and fees can consume a large share of a small target.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A take profit is a planned exit for a winning trade, usually a limit order at the target.
- Choose the target from the chart, then check the risk-to-reward ratio against your stop.
- Link the take profit and stop as an OCO/bracket order where possible.
- Fixed targets, scaling out and trailing stops trade certainty against upside differently.
Frequently asked questions
Is a take profit the same as a limit order?
Should I always use a take profit?
Why didn’t my take profit fill when the price touched it?
Further learning
- Stop Loss
The other half of every bracket order.
- Risk-to-Reward Ratio
Judge whether the target is worth the risk.
- Limit Order
The order type behind most take profits.
- Position Sizing
Size the trade so the stop risks a fixed amount.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Understanding Order Types – Investor Bulletin (opens in a new tab) Checked .
- Fidelity. Exit Strategies (opens in a new tab) Checked .
- Fidelity. What Is A Conditional Order? (opens in a new tab) Checked .
Read more elsewhere
- Investopedia: Take-Profit Order (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.