What is Take profit?

What does Take profit mean in practice?

It is the counterpart of the stop. Set the target at a multiple of the risk and the trade has a defined reward-to-risk. A 2:1 target risks 1 to try to make 2, so the strategy needs to win far less often than half the time to be profitable, in theory.

Targets cost something too: a fixed target caps the best case, and a trade that would have run much further is closed early. Whether that trade-off is worth it depends on how the strategy's trades actually behave, which is what backtested MAE and MFE statistics show.

A worked example

Illustrative only: buy at 100, stop at 98, target at 104. Risk is 2 and the reward is 4, a 2:1 ratio. If it wins one trade in three, that ratio breaks even before costs.

How to read or test it

Use the backtest's MFE statistics to see how far winning trades typically moved in your favour, and set targets with that in mind rather than from a round-number reward-to-risk. Compare results with a fixed target against results with a trailing exit, on the same trades. The target that looks best is the one that reflects how this strategy's trades behave, not the one that gives the neatest ratio.

How AKQX handles Take profit

AKQX strategies have configurable take profit levels, and backtest reports include MAE and MFE so you can see whether targets leave gains behind or stops sit too close.

See No-code algo strategy builder for the feature page.

A common mistake

Choosing a reward-to-risk that looks attractive without checking how often the market actually reaches it.

Related terms