Every trader obsesses over entries — when to buy. Most barely think about exits — when to sell for profit.
This is backwards.
Your entry determines whether you are in a good trade. Your exit determines how much you make from it.
A brilliant entry with a poor exit produces mediocre results. A decent entry with a brilliant exit produces excellent results.
A take profit is a pre-defined price level at which your trade automatically closes in profit.
Set when you enter the trade. When price reaches your target — position closes automatically. Profit locked in.
Example:
Buy Bitcoin at $80,000.
Stop loss at $77,000.
Take profit at $89,000.
If Bitcoin reaches $89,000 — position closes. $9,000 profit per BTC locked in.
If Bitcoin falls to $77,000 — stop loss closes. $3,000 loss per BTC.
Risk to Reward (R:R) = Potential Profit ÷ Potential Loss
From the example above:
Potential profit: $9,000
Potential loss: $3,000
R:R = $9,000 ÷ $3,000 = 3:1
For every $1 risked — you make $3.
Trading with 1:1 R:R — risking $100 to make $100:
Need 51% win rate just to break even after fees.
Very hard to maintain long term.
Trading with 1:2 R:R — risking $100 to make $200:
Need only 34% win rate to break even.
Profitable with less than 50% win rate.
Trading with 1:3 R:R — risking $100 to make $300:
Need only 26% win rate to break even.
Even mediocre traders become profitable.
The minimum acceptable R:R is 1:2.
Ideally 1:3 or better.
Never take a trade with R:R below 1:2.
Method 1 — Key resistance levels
Most natural take profit location.
Set take profit just BELOW the next significant resistance.
Why below? Resistance often causes rejection before it breaks.
Taking profit slightly before resistance increases fill probability.
Method 2 — Measured move
For Head and Shoulders, Double Bottom and other patterns — use the measured move target.
Project the height of the pattern from the breakout point.
Method 3 — Risk multiple
Set take profit at 2x, 3x or more your risk distance.
Entry $80,000. Stop $77,000. Risk = $3,000.
2R target = $80,000 + $6,000 = $86,000.
3R target = $80,000 + $9,000 = $89,000.
Professional traders rarely exit entire positions at one level.
Staged exit strategy:
Take 50% profit at 1R target — trade now risk free.
Move stop to breakeven on remaining 50%.
Let remaining 50% run to 2R or 3R target.
Trail stop on remaining position.
Benefits:
Locks in guaranteed profit early.
Removes all risk from remaining position.
Allows participation in larger moves.
Reduces emotional pressure — you have already won something.
The scenario:
Trade reaches your 2R target.
Instead of closing — you hold. “It could go to 5R.”
Price reverses. Hits breakeven.
You hold. “It will come back.”
Price hits stop loss. Full loss.
You had a winning trade. You turned it into a full loss.
The solution:
Take partial profits at your original target.
Move stop to breakeven on remainder.
Now worst case is you bank some profit.
Greed turns winners into losers more often than any other emotion. Set your targets. Take your profits. Move on.
Before entering any trade — calculate R:R.
If R:R is below 1:2 — skip the trade.
No exceptions. No “but the setup looks perfect.”
A trade with 1:1 R:R is a bad trade regardless of how confident you feel.
Simple R:R calculation:
Entry: $80,000
Stop: $77,000 — risk $3,000
Target: $86,000 — reward $6,000
R:R = $6,000 ÷ $3,000 = 2:1 ✅
Entry: $80,000
Stop: $78,000 — risk $2,000
Target: $82,000 — reward $2,000
R:R = $2,000 ÷ $2,000 = 1:1 ❌ Skip this trade.
Before every trade — write down:
If any of these is missing — do not enter the trade.
This simple habit transforms trading from emotional gambling into systematic decision making.
In the next topic we will study trailing stop losses — how to stay in winning trades longer while protecting your profits.