Profit Target
Definition
A profit target is a predetermined exit price where you plan to close a winning trade and lock in gains — defined before you enter the position based on the risk-reward ratio you require and the next significant resistance or support level, not set arbitrarily while the trade is in progress.
Example
“Entry at $31.50, stop at $31.10 ($0.40 risk), so at a minimum 2:1 I need a target of $32.30. The next resistance is $32.40, so I set my limit sell at $32.30 — just under resistance to ensure I fill rather than waiting for the exact high.”
Detailed Explanation
A profit target has two jobs: defining the reward side of your risk-reward ratio before you enter, and giving you a rule-based exit so you don't have to make emotional decisions about when to get out of a winner. Without a target, most traders fall into one of two traps: exiting too early because they fear giving back gains (paper hands), or holding too long because greed keeps telling them "it's going higher" until the trade reverses and becomes a loser. A predefined target removes both failure modes by making the exit a mechanical event rather than an emotional one.
Setting targets at logical levels matters because the market respects supply and demand, not your P&L needs. A target needs to be at or near a level where sellers are likely to appear — prior highs, key moving averages, round numbers, gap fill levels, VWAP extensions. Setting a target in the middle of empty space because "that's where I want my 3R" doesn't make the price get there any more likely. The best targets are where your risk-reward objective aligns with a technical level — if you need 2R and the next resistance is at exactly 2R away, that's a clean setup. If the next resistance is only at 1.2R, either tighten the stop, skip the trade, or accept a lower R multiple and account for it in your expectancy calculations.
Partial profit taking is a middle-ground approach many active traders use: taking half the position off at 1R or 2R and letting the remainder run with a trailing stop toward a larger target. This locks in a portion of the gain (satisfying the psychological need to "take something") while keeping exposure to a larger move. The math works if your runner target is genuinely achievable and your trailing stop is managed intelligently. It also helps with the common scenario where you're right about direction but the stock consolidates before continuing — you've already captured some profit, so the consolidation is easier to sit through.