Take-Profit Order (TP)

A take-profit (TP) order is a limit order placed to automatically close a position when a security reaches a specified price, locking in gains without requiring continuous monitoring. It’s commonly used with a stop-loss order to define a trade’s risk and reward in advance.

Key points

• A TP order is a limit order to sell (or buy to cover) at a predetermined profit price.
• Often paired with a stop-loss (SL) to establish a clear risk-to-reward ratio.
• Useful for short-term trading and systematic strategies that require predefined exits.
• Can create opportunity cost if the market continues beyond the target; trailing stops or partial exits can help capture more upside.

How it works

• Trader opens a position and places a TP at the level where they want to take profits.
• If the market reaches that price, the TP limit order executes and closes the position.
• If a stop-loss is also set and the market moves against the position, the SL executes to limit losses.
• Many platforms allow bracket or OCO (one-cancels-the-other) orders so the TP and SL are linked — execution of one cancels the other.

Why use a TP order

• Removes emotion and second-guessing from exit decisions.
• Automates trade management, freeing the trader from constant market watching.
• Enforces disciplined money management by locking in predefined gains.
• Can be calibrated using technical levels (resistance, Fibonacci, chart patterns) or money management rules.

Limitations and trade-offs

• Execution at the target price prevents participation in further upside if the asset continues moving favorably.
• In volatile or illiquid markets, partial fills or slippage can occur.
• TP orders suit shorter holding periods and defined setups; long-term investors may prefer to ride moves rather than exit at a target.

Example

A trader identifies an ascending-triangle breakout setup and enters long:
* Entry price: 100
* Take-profit: 115 (15% above entry)
* Stop-loss: 95 (5% below entry)

Reward = 15%; Risk = 5% → reward:risk = 3:1. The TP automatically exits at 115 if reached, while the SL protects downside at 95. The trader need not monitor the trade intraday.

Practical tips

• Place TP levels at meaningful technical points (resistance, prior highs) or according to a tested money-management rule.
• Use OCO/bracket orders to link TP and SL and avoid manual errors.
• Consider partial profit-taking to lock some gains while leaving a portion to run.
• In trending markets, consider trailing stops to capture more upside than a fixed TP.
• Account for liquidity and spread when setting precise TP levels.

Bottom line

A take-profit order is a simple, effective tool for automating exits and enforcing discipline. Paired with a stop-loss and thoughtful placement based on analysis, TP orders help define and manage risk-to-reward in a trade. However, they can limit upside in strong moves, so choose exit methods that match your time frame and trading goals.