A take profit (TP) is an order that closes a position automatically when price hits a predefined favorable level. On a long position the TP sits above entry; on a short, below. Once placed with the broker, it executes server-side, which means the trader does not have to be at the screen for the gain to be locked in. Most TP orders are limit orders, so when triggered they fill at the requested price or better — unlike stop orders, they generally do not slip adversely.
Take profits are the symmetric counterpart to the stop loss: together they define a fully bracketed trade where both downside and upside outcomes are pre-committed at entry. The ratio of TP distance to stop distance is the trade's R:R, and that ratio is what allows expectancy math to work.
Formula
Reward per trade ($) = |TP price - Entry price| x pip value x lot size
R:R ratio = TP distance (pips) / Stop distance (pips)
Worked example
EUR/USD long at 1.0850, stop at 1.0820 (30-pip risk), TP at 1.0910 (60-pip reward). Lot size: 0.33 lots.
- Risk if stop hits: 30 x $3.30 = $99
- Reward if TP hits: 60 x $3.30 = $198
- R:R = 60/30 = 2.0R
- At a 40% win rate this still nets positive expectancy: 0.40 x 2R - 0.60 x 1R = +0.20R per trade
Why it matters
A pre-placed TP removes the in-trade decision of "should I take it now?" — which is the moment most discretionary traders give back gains. It also lets the system run without screen time, which is what makes the strategy actually scalable across more than 2 to 3 simultaneous positions.
Common pitfalls
- Setting TPs too tight to feel "safer" — collapses R:R and forces unrealistic win rates to stay profitable.
- Placing TPs in the obvious liquidity pocket (just above a prior high), where price often reverses 1-2 pips short. Logging Maximum Favorable Excursion vs TP distance reveals this pattern.
- Removing the TP late in a trade to "let it run" without converting to a trailing stop — strips the structure that made the trade work.