What Is a Take Profit Order and What Does TP Mean in Trading?

A take-profit is an order that automatically closes a trade at a predetermined price to secure profits. For a long position, set it above the entry price; for a short position, set it below. Setting a take-profit is optional, but it helps close a trade quickly when you cannot do so manually. 

In this article, you will learn what TP means in trading, when to use it, and how to calculate the take-profit price.

The article covers the following subjects:

Major Takeaways

• What is a Take-Profit order? A take-profit is a pending order used to automatically lock in profits. It is set in the order window of a trading platform.

• A take-profit can only be set in the direction of the expected price movement. For example, for a long position, it cannot be set below the trade’s opening price.

• A take-profit allows traders to automatically close a position and lock in profits. It is also used to automatically take profits in short-term trading, such as scalping, or during periods of high volatility. Take-profit orders also help traders develop trading discipline.

• Ways to set a take-profit: You can set the take-profit distance at two or three times the stop-loss distance. Under a risk management system, the stop-loss distance is calculated first. You can also place a take-profit near key resistance and support levels, at Fibonacci levels, or based on the ATR volatility indicator.

• Risk optimization: 50% of the trade is closed at the nearest key take-profit level (the first price target). This conservative approach allows traders to lock in a profit. The rest of the position remains open and is often managed with a tight trailing stop.

What Is Take Profit Order?

What does take-profit mean in trading? A take-profit order automatically closes a position at a profit when the price reaches a specific level. It is used only to automatically lock in profits and can only be set in the direction of the expected price movement for an open trade. For a long position, it is set above the opening price; for a short position, below it.

Why use take-profit in trading?

• To lock in profits when you are away from your computer. If the price reaches the specified level, the trade closes automatically, and the profit is locked in. Any further price movements will no longer affect your account balance.

• For scalping. A take-profit order closes the trade faster than you could close it manually.

• For discipline. Greed, FOMO, and the desire to recover a previous loss may cause traders to delay closing a trade until the last moment. However, the price can suddenly reverse at any time. Missing out on potential profits can negatively affect a trader’s emotional state. By contrast, closing a profitable trade with a take-profit order can reduce emotional stress, even if the profit is smaller than it could have been.

A take-profit allows traders to set a target price for closing a trade in advance, lock in profits without constantly monitoring the market, and reduce the influence of emotions.

How a Take Profit Order Works: Example

You set the take-profit value in the trading platform’s order window. Let’s look at the process step by step using the LiteFinance online platform.

1. Register and open a trading account. In the online platform, click “Trade” in the left-hand panel and select an asset, for example, BTC/USD. The price chart will open, with the order window on the right. Open the “Trade Closing Conditions” tab.

2. In the order window, you can set the take-profit in three different ways:

• Take-Profit. Enter your target profit in US dollars. For example, the current BTC entry price for a long trade is $79,403.41. To earn $1,000, enter that amount in the corresponding field.

• Movement. Enter the value. For BTC/USD, a movement of $0.01 corresponds to 1 point. A movement of $1 corresponds to 100 points.

• Close Price. Enter the specific price at which you want the trade to close, for example, $80,403.41.

Important! Keep in mind that the position size affects the values in these fields. For example, if you open a 0.01-lot trade, the BTC price would need to rise by $100,000 for you to earn $1,000.

The open trade with the specified parameters will appear in the “Portfolio” section at the bottom. To set a different take-profit value, click “Edit.”

How to Use Take Profit in a Trading Strategy

The general process is as follows:

• Decide whether you need a take-profit. If you can close the trade manually quickly, you may not need a take-profit. If you open multiple trades and cannot monitor each one, it makes sense to set one.

• Decide on the minimum potential profit you consider acceptable. This can serve as a reference point for setting a conservative take-profit.

• Choose a method for calculating the take-profit distance. Identify key support and resistance levels, and assess trend strength and market volatility. Use this information to set the take-profit.

The main task is to determine the appropriate take-profit price level. Take-profit orders are commonly used by short-term traders, particularly scalpers and intraday traders who use trading robots.

Where to Set Your Take Profit Level

Let’s look at how to set a take-profit. The basic rule is to place the order where price behavior is likely to change: for example, where the risk of a reversal increases sharply or there are no fundamental drivers for further price movement. If you set the take-profit too close to the entry point, the profit will be small. If you set it too far away, the price may reverse before reaching it, making the order ineffective.

Here are five common ways to set a take-profit:

1. Before key support and resistance levels. For a long position, place TP slightly below a key resistance level; for a short position, slightly above support. This helps ensure the order is executed before the price reverses or reaches an area with many pending orders.

2. Using Fibonacci levels. Plot Fibonacci levels along the price move. The 138.2% and 161.8% extension levels are often used as take-profit targets. Retracement levels can be used when trading against the trend.

3. Using volatility indicators. For example, the Average True Range (ATR) shows how many points or dollars an asset moves on average per day. If the asset’s ATR is 50 points and the price has already moved 30 points during the day, a short-term take-profit target would be 20 points away. For trend-following strategies meant to keep trades open for several days, a TP distance of 1.5 ATR can be used as a reference.

4. Using the risk-reward ratio. First, calculate the acceptable stop-loss distance based on the value of one point and your account balance, following the rule of risking 1–2% of your account per trade. You can set the stop-loss-to-take-profit ratio at 1:2 or 1:3. For example, if your risk (SL) is $10, set the TP at +$20 or +$30.

5. At the boundary of a price channel. When trading within a range, you can use the opposite boundary of the channel as the target.

The take-profit level largely depends on how much risk the trader is willing to accept. The goal is to find a balance between a short take-profit, which minimizes risk but may cause you to miss much of the trend, and a more distant take-profit, which involves greater risk. 

One common strategy is to use two take-profit levels or a trailing stop. In the first case, a conservative take-profit at the nearest target level is set for 50% of the position, while a more distant TP is set for the other 50%. In the second case, 50% of the position is closed at a conservative target, locking in profit at a level the price is more likely to reach. The remaining 50% is protected by a trailing stop with a relatively small distance of 15–20 points.

One important detail: on many platforms, including MT4/MT5, a take-profit closes the entire position. Therefore, to implement the 50/50 strategy, split the main position into two equal orders, each with its own take-profit.

How to Place a Take Profit Order in MT4/MT5

In this section, we will look at how to set a take-profit in MetaTrader. Unlike the LiteFinance platform, MT4/MT5 only allows you to enter a specific take-profit price. You cannot enter the profit amount in currency or points.

Open the trade window on the asset’s chart. You will see a field where you can enter the take-profit value. Here, you can set the target price at which the trade will be closed automatically. A TP order can be set for any type of order, including both market orders and pending orders. 

If the take-profit value is entered incorrectly, the market order or limit order cannot be executed, and the platform will reject the request. The screenshot shows an example where the take-profit value for a long position is set below the current market price.

An open trade with a take-profit will appear in the “Terminal” window. You can change the take-profit value in the order itself or by dragging the red dashed line on the chart.

Take Profit vs Stop Loss

Take-profit and stop-loss orders serve completely opposite purposes. A take-profit order automatically locks in profit when the price moves in the expected direction. A stop-loss limits potential losses and automatically closes a trade when the price moves against the position.

Criterion	Take Profit order	Stop Loss order
Purpose	Automatically locks in profit at the desired price level.	Limits losses by automatically closing the trade at the specified price level.
Function	Helps close the trade before the price reverses sharply. Helps protect profits.	Helps traders avoid making emotional decisions based on fear or hope (“the price will reverse soon”). Helps manage risk.
Order placement	Long position — above the opening price; short position — below the opening price.	Long position — below the opening price; short position — above the opening price.
Is it required?	Optional but recommended, especially if trades are not constantly monitored.	Optional but strongly recommended. Critical for protecting your account, especially in highly volatile markets.
Basic calculation method	Based on support/resistance levels and the trader’s own targets. Mathematical method — twice the stop-loss distance.	Based on the acceptable risk per trade, for example, 1–2% of the account balance.
Behavior during slippage	May close at a better price, resulting in a higher profit.	May close at a worse price, increasing the loss.

Common Take Profit Mistakes

The main mistake is choosing the wrong take-profit level. As a result, the trade may close much too early, preventing the trader from capturing most of the profit from the trend. Alternatively, the price may reverse before reaching the take-profit. In this case, the trader may even lose money on a previously profitable trade.

The main mistakes include:

• Setting the take-profit too close. The trade closes after the first small move in the expected direction, even if market momentum continues. As a result, the trader consistently limits potential profits and worsens the risk-reward ratio.

• Setting the target too far away. The take-profit is set without considering volatility and nearby support and resistance levels. The price may reverse before reaching the target.

• Ignoring support and resistance levels. Placing the order just beyond a strong level reduces the chances that it will be executed.

• Using the wrong risk-reward ratio. For example, the stop-loss is 100 points, while the potential profit is only 50 points. As a rule, the take-profit distance should be at least twice the stop-loss distance.

• Using the same take-profit in all market conditions. A fixed target in points should account for changes in volatility across different trading sessions and market conditions, including fundamental factors. When the ATR is high, the target may be too close; when it is low, the target may be too far away.

Another issue is changing the take-profit level after opening a trade. When the market price approaches the take-profit, the trader may move it further away, driven by euphoria. As a result, a sharp reversal may lead to missed profits. This is not necessarily a mistake, but it indicates a lack of trading discipline. Predetermined price levels can be adjusted, but it is better not to do so too often.

Conclusion

A take-profit is a limit order used to automatically lock in profits. It is executed without the trader’s involvement, even when the computer is turned off.

A close take-profit may result in missed profits but carries relatively low risk. A distant take-profit offers higher potential profit, but it also carries a greater risk that the price will not reach it. A distant take-profit makes sense if you monitor the chart and are ready to close the trade manually if the price reverses.

The main methods for calculating the take-profit distance are mathematical and chart-based methods used in technical analysis. The mathematical method is based on the stop-loss distance and expected value. The chart-based method considers support and resistance levels and the boundaries of the trading channel.

Want to learn how to set pending orders correctly and gain real trading experience? Try trading on a LiteFinance demo account without making a deposit.

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