A take-profit (TP) is the planned exit on the winning side of a trade. It is typically a limit order: a sell limit above the entry for a long, or a buy limit below it for a short. Together with the stop-loss, it defines the trade’s risk/reward ratio before you enter.
How it works
Common ways to set a take-profit:
- The next obstacle. Just below resistance for a long, or above support for a short, so the order fills before the crowd starts selling.
- Measured moves. Many chart patterns project a target, for example the height of a double bottom or the flagpole of a bull flag.
- Risk multiples. A target at 2 or 3 times the stop distance, often written 2R or 3R.
- Scaling out. Part of the position at a first target, the rest with a trailing stop.
Because a take-profit is a limit order, it fills at your price or better, but only if price actually reaches it.
Example
A trader buys a currency pair at 1.0850 with a stop at 1.0810 (40 pips of risk). Resistance sits at 1.0960. The trader sets a take-profit at 1.0950, 100 pips above entry and 10 pips under resistance, for a ratio of 1 : 2.5. Price reaches 1.0957 and turns lower; the order filled at 1.0950. A target placed exactly at 1.0960 would have missed by three pips and the trade might have gone back to the stop.
Alternatively, the trader could close half at 1.0930 (2R) and move the stop on the rest to breakeven.
Common mistakes
- Targets beyond strong resistance. Price often stalls before the level, leaving the order unfilled.
- Targets that do not justify the risk. A 1 : 0.5 ratio needs a very high win rate to break even.
- Moving the target further on a whim while leaving the stop where it was.
- Closing early by hand and leaving the plan’s numbers meaningless.
Check a planned target with the risk/reward calculator or the profit calculator.
Educational content — not financial advice.
Updated