what is a take profit order t p 
a take profit order t p is a type of limit order that specifies the exact price at which to close out an open position for a profit if the price of the security does not reach the limit price the take profit order does not get filled basics of a take profit ordermost traders use take profit orders in conjunction with stop loss orders s l to manage their open positions if the security rises to the take profit point the t p order is executed and the position is closed for a gain if the security falls to the stop loss point the s l order is executed and the position is closed for a loss the difference between the market price and these two points helps define the trade s risk to reward ratio the benefit of using a take profit order is that the trader doesn t have to worry about manually executing a trade or second guessing themselves on the other hand take profit orders are executed at the best possible price regardless of the underlying security s behavior the stock could start to breakout higher but the t p order might execute at the very beginning of the breakout resulting in high opportunity costs take profit orders are best used by short term traders interested in managing their risk this is because they can get out of a trade as soon as their planned profit target is reached and not risk a possible future downturn in the market traders with a long term strategy do not favor such orders because it cuts into their profits take profit orders are often placed at levels that are defined by other forms of technical analysis including chart pattern analysis and support and resistance levels or using money management techniques such as the kelly criterion many trading system developers also use take profit orders when placing automated trades since they can be well defined and serve as a great risk management technique take profit order examplesuppose that a trader spots an ascending triangle chart pattern and opens a new long position if the stock has a breakout the trader expects that it will rise to 15 percent from its current levels if the stock doesn t breakout the trader wants to quickly exit the position and move on to the next opportunity the trader might create a take profit order that is 15 percent higher than the market price in order to automatically sell when the stock reaches that level at the same time they may place a stop loss order that s five percent below the current market price the combination of the take profit and stop loss order creates a 5 15 risk to reward ratio which is favorable assuming that the odds of reaching each outcome are equal or if the odds are skewed toward the breakout scenario by placing the take profit order the trader doesn t have to worry about diligently tracking the stock throughout the day or second guessing themselves with regards to how high the stock may go after the breakout there is a well defined risk to reward ratio and the trader knows what to expect before the trade even occurs 