Where Should You Take Profit?
A take profit is a price chosen before entry at which the position closes, usually set as a multiple of the stop distance or at a level price has already reacted to. Extending it raises the reward on each win and lowers how often it is reached, and the two effects work against each other.
The exit gets a fraction of the attention the entry does and decides more of the outcome. This page is about one narrow question: where the target goes, and what moving it costs.
How it works
Three prices, all decided before entry: where you get in, where you are wrong, and where you are done.
The third one is the only one that is optional, and skipping it is what turns a plan into a running argument with yourself.
The ratio is not free
Take a price with no drift at all, a pure random walk, and hold the stop constant. The chance of reaching a target before the stop then follows from arithmetic alone:
| Target | Reached first | Stopped first | Expectancy per unit risked |
|---|---|---|---|
| 1× the stop | 50% | 50% | 0 |
| 2× | 33% | 67% | 0 |
| 4× | 20% | 80% | 0 |
| 6× | 14% | 86% | 0 |
A more distant target is reached less often, and the fall is steep.
This is the honest correction to “always use at least 1:2”. The ratio on a chart is not the ratio you get — it is the ratio if it works, and extending the target lowers how often that happens.
Neither column is the answer on its own. A high hit rate at 1× and a high payoff at 4× are two ways of arranging the same uncertainty, and the arithmetic that combines them is expectancy, not either number alone.
One caveat, stated plainly: this is the no-edge case with no costs in it, so every row breaks even before the spread and loses after it. The table demonstrates the trade-off, not a strategy — nothing here says any of these settings makes money.
A level beats a multiple
A multiple of the stop is a number with nothing at it. An old high is a price where orders rest, which is the crowding argument on the support and resistance page.
So where the two disagree, prefer the level — and if the nearest level gives a poor ratio against your stop, that is the setup telling you it is not worth taking, rather than an invitation to move the target further out.
Partial exits
Take some at a near target and trail the remainder.
What it genuinely buys is behavioral, and that is worth saying rather than dressing up: it makes holding the rest tolerable, which means you hold it.
What it costs is arithmetic. Half the position exits at the low target, so the average result is between the two — you have chosen a middle outcome, not both outcomes.
Or no target at all
A trailing exit replaces a chosen price with a rule. Supertrend and Parabolic SAR both do this, and both give back the end of the move, as the worked charts on those pages show.
The trade is knowing where you exit against capturing an unknown amount. With a fixed target you know exactly what a win pays and cap it; with a trail you do not know either.
Time is an exit too
The three prices above are all about where. There is a fourth exit condition that has no price in it at all, and it is the one people forget to specify.
A trade can be closed because the thesis has expired rather than because it was wrong.
A gap taken to fill, an opening range break that never developed, a pullback entry that has sat still for a week — none of these has been stopped out and none is doing what it was taken for.
Without a time exit, those positions persist by default. They occupy risk budget, they occupy attention, and they are not the trade you analyzed any more.
The rule is as simple as the others: if this has not done what I expected within N bars, I am out flat. N belongs to the timeframe — a handful of bars for a day trade, several weeks for a swing.
The case for it grows with the target. The further away the target, the longer price takes on average to reach either exit, so a wide target leaves more positions simply sitting open — not winners, not losers, still there. A time exit is what converts them into decisions.
A worked example
Set all three prices before entry. Entry, stop, target.
Take the target from a level if there is one within reach.
Compare it with the stop distance. If the nearest sensible target is closer than the stop, the trade needs a hit rate above half to be worth anything — which is a real question to ask before entering rather than after.
Then leave it alone. The entire value of a target chosen in advance is that it was chosen in advance.
The original data
Across our study of 24,971 trading videos, 93 have take profit or taking profit in the title. The median one gets 14,939 views, 74% never pass 50,000, and the median length is 8.9 minutes.
The corpus carries description text for only 15 of those 93 — a thin sample — but across those 15, 9 mention invalidation, failure, or what a bad read looks like.
Three in five of a small sample, which is a high rate for this glossary — though 15 descriptions is too few to rank. Exits attract more honesty than entries do, and that is consistent with the stop loss and position sizing pages, which sit first and third on the same measure.
When it fails
The distant target is never reached
At six times the stop, a random walk reaches the target only about one time in seven, and many positions sit open a long while before either exit is touched.
An unreachable target is the same as no exit plan, because the position simply persists until something else ends it.
The move went further than the target
This is the cost of a fixed target and it is unavoidable. Capping the win is what buys the higher hit rate, and being annoyed at it afterwards is being annoyed at the trade you chose.
You moved it while in profit
Extending a target because the move looks strong converts a known plan into a live judgment, taken in the least calm condition available. The table above is what you are trading away.
You picked the target afterwards
Every target looks too near on a chart that kept going and too far on one that turned. The only version of this question that has a good answer is the one asked before entry.
Related
Entry and exit is the wider decision, and why the exit is the harder half.
Stop loss placement supplies the distance every ratio on this page is measured against.
And Supertrend is the alternative — a rule instead of a price, with its own costs.
Exits are harder than entries and I do not think anybody fully solves them. What I hold to is that the target has to exist before I am in, because a decision made about an exit while watching an open position is worse than the one you would make calmly. Whether the target is at a level or a multiple matters less than whether it was chosen in advance.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.