What is take profit and how does it work? A guide to correctly positioning take profits and improving trading performance.
In trading, knowing when to enter the market is important. But knowing when to exit is even more important. Many traders, even experienced ones, underestimate the importance of managing the exit process, but it’s there that determines whether a trading plan becomes profitable or not.
Two tools guide this decision: the stop loss, which limits losses, and the take profit, which automatically locks in a profit.
The take profit is a simple yet strategic function: it closes the position once a certain price level is reached, protecting the profit before the market can turn against it.
What is the take profit and what is it for?
The take profit is a conditional order that you communicate to your broker when you open a position. Essentially, you’re telling them: "Close everything when the price reaches this level." When the market reaches the level you set, the platform automatically closes the trade, transforming the "potential" gain into real profit.
It’s the opposite of a stop loss: while the latter blocks a loss, the take profit blocks a gain, preventing a profitable position from slipping back into the red.
It seems like a technical detail, but it’s not: the take profit affects the overall sustainability of the strategy and is one of the first rules of money management to know.
A poorly set level can lead to closing trades too early, or worse, letting the market run until you lose your gains.
Why setting a take profit is important
Many novice traders rely solely on intuition: "I’ll wait a little longer, maybe the price will rise further." It’s a classic mistake driven by greed. The take profit serves precisely to bring order to emotions.
When a position is profitable, the temptation to leave it open is strong, but the markets are unforgiving: a sudden reversal can erase hours or days of waiting in a matter of minutes.
By setting a take profit, you decide in advance when to "settle." And this is one of the habits that distinguishes a disciplined trader from someone hoping for luck.
Furthermore, take profit is also useful in practical terms: it allows you to cash in on your gains without being glued to the chart. Once set, the platform does everything automatically.
How to choose where to place the take profit
There is no universal formula for placing a take profit, as it depends on your trading style and the objective of the trade.
However, two typical situations can be distinguished:
Trading based on chart patterns
If you open a position after identifying a technical pattern (such as a double bottom or a head and shoulders), the take profit should be placed at the target predicted by the chart.
Trading in trend following
If you’re following the main trend, the reference point for taking profits is support and resistance. In this case, the rule is simple:
- in a long trade, place it just below a resistance;
- in a short trade, just above a support.
These zones represent areas where prices often slow or rebound, making them ideal for closing profits before a possible change in direction.
Practical example: Taking profit on EUR/USD
Let’s imagine opening a long position on EUR/USD at 1.1590, aiming to follow the bullish trend that has supported the euro for weeks. In September 2025, the EUR/USD exchange rate reached a high of 1.1918, its highest level in over four years.
Suppose we’ve identified significant resistance on the chart in the 1.1660 area.
In this case, a good choice is to set the take profit at 1.1650, a few points below the key level. Thus, if the price touches that threshold, the platform automatically closes the position, ensuring a 60-pip gain without having to manually intervene.
To manage risk, we set the stop loss at 1.1560, 30 pips below the entry point. In this case, the risk/reward ratio is 1:2. Therefore, for every euro potentially lost, two can be gained.
The risk/reward ratio: the trader’s compass
Those who trade methodically always think in terms of risk/reward ratio (R/R). It is the basis of any sensible strategy.
A ratio of 1:1 means risking 100 euros to gain 100.
A ratio of 1:2 or 1:3 is more efficient. This way, even if some trades are losing, the profits more than offset the losses.
On the other hand, using a ratio that’s too low, such as 1:0.5, leads to a trap: just one losing trade can wipe out several successful trades.
The key is to maintain consistency. It doesn’t matter if you don’t always win; the important thing is that your average gains exceed your average losses. And taking profits is the key to doing that.
Original article published on Money.it Italy. Original title: Take profit: cos’è, come funziona e come scegliere il livello giusto
