What Is a Take Profit? Definition & Example

A take profit is a standing order to close a position when price reaches a level you have chosen in advance. It is the mirror image of a stop loss, and it solves the opposite psychological problem: not panic, but greed and hesitation.

The case for using one is that unrealised profit is not profit. A position up 40% that you keep holding because it might go further can round-trip to flat in a single session, and the feeling of watching that happen reliably produces worse decisions than the ones that got you into a winning trade.

The case against is real too. Fixed targets cap your winners, and most trend-following strategies depend on a small number of outsized wins to pay for many small losses. If you cut every winner at 2R, you never capture the 10R move that makes the whole distribution work.

The common compromise is scaling out: close part of the position at a first target to lock in a realised gain and de-risk, then let the remainder run with the stop moved to break-even. You bank something, and you keep exposure to the tail outcome. It is not free — you have reduced your average winner in exchange for a much higher probability of ending the trade green.

Whatever you choose, set the target before entering and use it to sanity-check the trade. If the realistic target only offers a 1:1 risk/reward ratio, you need to win more than half your trades just to break even before fees — and that is a much higher bar than it sounds.