What Is Profit Target?
A profit target is a predetermined price level where you plan to close a profitable position. Setting targets before entering a trade removes emotion from the exit decision. Common methods for setting targets: previous support/resistance levels, Fibonacci extensions, measured moves (pattern height projected from breakout), and R-multiple targets (2R, 3R, etc.).
How Profit Target Works
Targets can be single (exit all at one level) or scaled (take partial profits at multiple levels — e.g., 50% at 2R, 25% at 3R, final 25% with a trailing stop). Scaled exits lock in profits while maintaining exposure to further upside. The trade-off: single targets maximize the position's dollar impact at that level; scaled exits reduce the risk of giving back unrealized gains.
Why It Matters for Traders
The choice of profit target should match the market regime. In ranging markets, take profits at the other side of the range (resistance for longs). In trending markets, use trailing stops or Fibonacci extensions to let winners run. The biggest mistake is having no target at all — this leads to either taking profits too early (fear) or watching unrealized gains evaporate (greed).
