Take-profit

A take-profit (TP) is an exit order attached to an open position that closes it when price reaches a chosen level in your favour. For a long trade it sits above the entry; for a short trade, below. It works like a limit order, so it fills at your level or better and is not subject to negative slippage, though in a gap it may fill at a better price than set.

Example

Illustrative figures: you sell 0.3 lots of GBP/USD at 1.2700 with a stop-loss at 1.2740 (40 pips) and a take-profit at 1.2620 (80 pips). At 3 dollars per pip, the planned loss is 120 dollars and the planned gain 240 dollars, a risk-reward ratio of 1:2. If the ask reaches 1.2620, the position closes automatically.

Note that a short position is closed by buying, so the take-profit triggers on the ask price. With a wide spread, the chart (which usually shows the bid) can look as if it touched your level without the order being filled.

Where traders set targets

• Just before the next support or resistance zone, where price has turned before.
• At a multiple of the risk, such as 2R.
• Based on average daily range or ATR.

Common mistakes

• Targets that are unrealistic for the timeframe, so they are rarely reached and the actual win rate is much lower than assumed.
• Closing early by hand every time a trade shows a small gain while letting losers run to the stop, which reverses the planned ratio.
• No target and no plan, which makes results hard to review.

A trailing stop is an alternative way to exit winning trades. See our guides to order types and risk-reward ratio.