Profit Targets

A profit target is the price at which you plan to take some or all of your profit. Good targets are based on where the market is likely to pause or reverse, not on how much money you would like to make. A target that is too close leaves money on the table and hurts your reward to risk; a target that is too far is rarely reached, turning potential winners into losers or breakeven trades.

Ways to set targets#

Market based targets first#

The most reliable targets come from the chart itself. Before entering, ask: where is the nearest level where many traders might take profit or start selling? That is often a previous swing high, a round number, a high volume node or the top of a range. See Support and Resistance and Volume-Based Levels.

Notice the target sits slightly before the obvious level. Many sellers will be waiting at $76.50, so price often stalls just under it.

R multiples as a check#

Setting targets purely as 2R or 3R regardless of the chart is simple and consistent, but it can place targets beyond major resistance. A better use of R multiples is as a filter: if the realistic market based target is less than your minimum R, skip the trade. See Risk/Reward Ratio.

Partial targets#

Many traders use more than one target:

• First target at the nearest level, to lock in some profit and reduce risk.
• Second target at the next level or a measured move.
• Final portion with a trailing stop, for extended trends.

See Scaling Out and Partial Profits.

Managing targets during the trade#

• Do not move targets further away on hope. If you change a target, have a reason based on new information, such as a strong breakout through the expected resistance.
• Do not cut targets short on fear. Exiting at the first wobble turns 2R plans into 0.5R results.
• Consider time: if price approaches the target slowly and loses momentum, taking profit slightly early can be reasonable.

Targets by strategy#

Common mistakes#

• Targets based on account goals rather than market structure.
• Placing targets exactly at obvious levels where price often stalls just before.
• Using fixed targets on trend trades that could run much further.
• Moving targets mid trade without a reason.

Frequently asked questions#

How do I set a profit target?#

Use market structure first: the next support or resistance, a measured move or an ATR based distance, and check that the result gives an acceptable reward to risk.

Should I place my target at resistance?#

Slightly before resistance is often better, because sellers waiting at the level can stop price just short of it.

Is it better to use fixed targets or trailing stops?#

Fixed targets suit range and mean reversion trades; trailing stops suit trends. Many traders combine both.

Next, learn when to exit trades that are going nowhere with Time Stops.