How to Set Take Profit Levels

Set your take-profit at a price the market may struggle to pass. If you buy, this is often resistance above your entry. If you sell short, it is often support below your entry. Your possible profit should also make sense compared with your possible loss.

The course lesson on stop loss and take profit introduces this basic relationship. The choice becomes harder when the chart has several possible targets. Sometimes the nearest realistic target also leaves too little room for profit.

A Target Must Fit the Trade

Suppose you enter long at $100 after a bounce from support. Your stop sits at $96, so the possible loss is $4 per share. The chart shows clear resistance near $108. That target offers $8 of possible profit. You may gain twice as much as you may lose.

A target at $104 might feel safer, but it only offers the same $4 you are risking. A target at $120 looks more exciting, but price must first pass the $108 resistance. The chart gives no clear reason to expect that. The $108 target is supported by both the chart and the numbers.

Price may turn before $108 or move straight through it. Support and resistance are areas, not exact prices. The goal is to choose a target you can explain before the trade.

When the Chart Offers More Than One Target

The nearer level

Imagine resistance at $108 and another level at $114. Price has turned down from $108 several times. The $114 level is an older high. Both targets are possible, but price will meet the nearby $108 level first.

Your trading rules may tell you to exit near the first resistance. Other rules may allow you to aim for $114 when the trend is strong. In that case, decide in advance what you will do if price stops at $108. Do not choose a new target only because you are already in the trade.

Do not ignore the nearer level

A large target may sit behind a smaller price level. Do not ignore the nearer level. Look at what price did there before. Did price move through it easily, or did it often stop and turn?

The course lesson on support and resistance provides the basics behind this choice. A target is not a random number above or below your entry. It is a place where price may struggle because it has struggled there before.

When the Best Target Still Is Not Good Enough

Consider another long setup at $100 with a stop at $95. The risk is $5 per share, but the next resistance is at $103. Price may still bounce, but the possible profit is only $3. You would risk $5 to try to make $3.

Moving the target to $110 does not fix the trade if resistance at $103 may stop price. Moving the stop to $98 also fails if normal price movement can reach it while the setup is still valid. Both changes improve the numbers by ignoring what the chart shows.

The best choice may be to skip the trade. The lesson on risk/reward ratio explains the calculation; the calculation. Use it to reject weak trades. A clear pattern is not always worth trading.

Decide How Targets Can Change

Some trading plans allow a target to change. Write down the rule before the trade. For example, you may move the target only if price breaks above an important level and stays there. “The move looks strong” is not a clear rule.

Winning trades can also create pressure. You may exit too early because you are afraid of losing the profit. You may move the target too far because price keeps rising. In both cases, a feeling has replaced the plan.

In ChartingPark, open a historical chart without looking at the candles ahead. Mark an entry, stop, and at least two possible targets, then choose the target your rules support. Advance the chart and see where price stopped or turned. Did you miss a nearby level? Did the original target have a clear reason? Do not review only whether the target was hit. Use the result to choose a better target next time.