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Risk management

Take profit

A take profit is an order that closes the position automatically when price reaches your profit target. That locks in the gain even if you are not watching.

Skenuok.lt teamPublished 3 min read

The price rises from the entry to the target line, and the order closes by itself.
Example: You entered at 100, set the stop at 95 and the take profit at 115, just below the nearest resistance.

How a take profit works

A take profit can be a plain limit order at the target price or a conditional order that triggers when price reaches the target. For a long the target sits above the entry, for a short below it. When price reaches the target, the order fills, even if you are asleep. If price never gets there, the order waits until you cancel it or the position is closed some other way, for example by the stop.

The target and the stop together set the risk to reward ratio. Entry 100, stop 98, target 106: risk 2, potential gain 6, ratio 1:3.

Where to set the target

  • Just before resistance: sellers often show up near a previous high. A target placed before the resistance level is more likely to be reached than one beyond it.
  • In parts: part of the position closes at the first target, the rest is left for a second one. Some traders then move the stop to the entry price (break-even stop).
  • From the chart, not from hope: the target must be realistic for the structure, not the number you "need".

Real example: BTC in summer 2024

In May and June 2024 BTC/USDT stalled twice near 72,000 (highs of 71,979 on 21 May and 71,997 on 7 June). On 5 July price had dropped to 53,486. Suppose a long was opened on 9 July at 58,050 with a target at 69,500, before the resistance zone. On 29 July price rose to 70,080: the target filled, while the zone itself was never reached. On 5 August the low was 49,000, below the entry, so waiting for a breakout would have turned the gain into a loss. This is hindsight: nobody knew in advance that price would turn.

BTC/USDT daily chart from May to August 2024: the resistance zone around 71,000-72,000, an example entry at 58,050 with a 69,500 target, the rise to 70,080 on 29 July and the drop to 49,000 on 5 August.
BTC/USDT, 1D, 2024-05-10 to 2024-08-10, Binance data. The 58,050 entry and 69,500 target are a teaching example, not a real trade and not investment advice.

Common mistakes

  • Having no target and waiting for "a bit more". Unrealised profit can vanish within hours.
  • Setting the target exactly on a level or round number, where price often stops just short.
  • Choosing an unrealistic target just to make the ratio to the stop look good.
  • Closing a winning position too early out of fear while holding a losing one out of hope.

How to practise

Take 10 historical bounces from support and mark the nearest resistance for each. Note how many times price reached a target placed before the level and how many times it stopped earlier. Mark separately the cases where price stalled just a few percent short of the level. That shows whether your targets are realistic. More on targets and stops: Risk management and stop loss.

RiskThis content is for education only and is not financial or investment advice. Crypto trading carries a high risk of loss. We do not promise profits.

Frequently asked questions

Do you have to use a take profit?
No, but without a preset target the decision gets made in the heat of the moment. Some traders use a trailing stop instead of a fixed target.
What is a partial take profit?
Closing the position in parts, for example half at the first target and the rest at the second. Part of the gain is locked in early, and the rest stays in case the move continues.
How is a take profit different from a stop loss?
A take profit closes the position when price reaches the target, a stop loss when it moves against you. Both are best set before the trade is opened.

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Related terms

Stop lossA stop loss is a preset order that closes the position if price moves against you to a certain level. It caps your maximum loss on a single trade.Risk to reward (R:R)How much you can lose compared with how much you aim to gain: R:R 1:3 means you risk 1 to make 3. The higher the ratio, the lower the win rate you...ResistanceA price level where rallies used to stall because sellers showed up there. On the chart it is a line above the highs.Trailing stopA stop that follows price in your favor and never moves back. It lets profit grow and locks in most of it when price turns.Break-even stopA stop moved to the entry price once price moves in your favor. From then on the worst case is losing only the fees, unless price jumps past the stop.OCO orderTwo linked orders, usually a stop and a profit target. When one fills, the other is cancelled automatically.