Profit-Taking: What to Know and How to Get Started

Trading and investing is all about making money, and learning to profit take is a skill of it’s own. It can be the difference between being green on the trade versus red.

What Does Profit-Taking Mean, Exactly?

So we all know what the term “profit” means, but for those who don’t, profit means the extra income on top of your original investment. For example, you trade a stock with $100, and sell at $110. The difference between $110 and the $100 is your profit.

Okay, now that we got that cleared, what does profit-taking mean? Well, exactly as it’s written – it’s the act of selling an asset that has increased in value. This may also be referred to as, “realized profit.”

How Does Profit-Taking Work?

Profit-taking also known as, “realizing profit”, is actually pretty easy. All requires the trader or the investor to sell a partial or all of their asset.

As a investor or trader, your goal to buy a stock or option contract and sell them for a higher price in the future. If the stock or option contract price rises to your ideal target price, then you have the option to sell your stock or option contracts.

Profit-Taking Strategies

There’s no single way of profit-taking, so here’s quick list of 3 examples that most traders do.

• Price target: This is when an investor or trader take all their profit at a set price target.
• Percentage target: This is when an investor or trader sell their stock or options when the value has reached a targeted percentage.
• Scale out: An investor or trader may choose to sell a portion of their stock or options when the asset has hit a certain price or percentage target. This will allow the investor or trader to realize some profits while still benefiting from any further profit increases.

Can you Automate Profit-Taking?

Yes, you can automate profit-taking by setting a limit or market take profit order. Most modern brokerages provide the tooling for investors or traders to create that type of order.

How to Set a Take Profit Order

In this example, I’ll be using Webull as the brokerage to set a take profit order.

Step 1. Create a Take Profit Order

Just like shown in the image above, you’ll want to create a Limit + Take Profit or a Market + Take Profit.

For option trading, the Market + Take Profit Order will not work. You’ll have to select Limit + Take Profit when trading options.

Step 2. Set Take-Profit Target

Go ahead and set the desire price target you’d like for your shares or contracts to be.

Step 3. Set Length of Take Profit Order

Before you submit your order, you can select the length of your Take Profit Order by selecting Day or Good ‘Til Canceled in the Time-in-Force input field.

If you select Day, the Take Profit order will only be good until the market closes for that given day.

If you select Good ‘Til Canceled, the Take Profit order will be good for 60 days, after the order has been placed.

To Sum It Up

Profit-taking helps investors and traders lock in gains after the value of security has increased in value.

Other Asked Questions

Are +200% Gains normal with Weekly Options?

Weekly options are extremely volatile, and it’s not very common to see 200% gains in trading. Consistent and profitable traders start profit-taking at 10, 20 and 30 percent gains, and let runners run to 200% if it can.

Also, traders who claim to be profit-taking 200% gains or more in trading should be approached with caution.

Do you Take Profit Based on Percentage or Technical Analysis Exit?

This ultimately boils down to the individual as both percentage-base and technical analysis exit strategies are both valid strategies.

Some traders and investors like to take profit-take at 10%, 20%, or 30% once the security or asset has reached a percentage target in gains.

Other traders and investors like to use their technical analysis to let them determine when their profit-taking exit should be.