Trading glossary
Take-profit order
By the PatternX team · Published
Definition
A take-profit order closes a position automatically when price reaches a preset target in your favor, locking in the gain. It is usually a limit order, so it fills at the target or better, but only if the market trades there.
How it works
A take-profit (TP) rests above the market for a long position and below it for a short. It is often paired with a stop-loss as a bracket or OCO ("one cancels the other") order: when one side fills, the broker cancels the other.
Common ways to set the target:
- Measured move: project a pattern's height from the breakout point, as described under measured move.
- Prior levels: the next resistance for a long, the next support for a short.
- R multiple: a fixed multiple of the amount at risk, such as twice the stop distance.
Why it matters
The target sets the reward side of the risk-reward ratio. Set it too close and the winners may not pay for the losers; set it too far and price may seldom get there. A fixed target also caps the occasional trade that keeps running, which is why some traders take partial profits and trail the rest.
Example
For example, a hypothetical bull flag breaks out at $30.00 after a $3.00 pole, so its measured-move target is $33.00, 10% above entry. If your settings cap take-profit at 6%, the target becomes $31.80. With a stop at $29.00, reward:risk is 1.8.
Common mistakes
- Choosing targets from hope rather than from structure.
- Cancelling the target as price approaches it, then watching the move reverse.
- Expecting a fill when price merely touches the target; a limit order also needs someone to trade with you at that price.
How PatternX uses it
On PatternX's chart-pattern signals the platform default take-profit is 10%. PatternX compares it with the pattern's measured-move target and uses whichever is nearer; if the resulting reward:risk is below 1, the signal is dropped. At some brokers the target is placed together with the stop: an OCO take-profit alongside the stop at IBKR, and an OCO order at Alpaca. Momentum Lab uses no take-profit by default; positions exit on the trail, the hard stop or the end-of-session exit. More in risk controls.