Take-Profit and Trade Management
Compare fixed targets, partial exits, trailing stops and break-even stops, and understand the trade-offs of each.
What you will learn
- Four common ways to exit a winning trade.
- How each method changes average win and win rate.
- How to calculate the R result of a partial exit.
- Why there is no single "best" exit method.
Explanation
Fixed target (take-profit): you exit the full position at a price decided in advance, such as 2R. It is simple and easy to test. The trade-off: you never catch a larger move, and price may turn just before your target.
Partial exit: you close part of the position at a first target and keep the rest for a further move. It reduces the swings in your results, but it also reduces the profit on your best trades.
Trailing stop: a stop that follows price as it moves in your favour, for example a fixed distance below the highest close, or a multiple of ATR (Average True Range). It can capture long trends. The trade-off: it always gives back some profit before exit, and in choppy markets it exits often.
Break-even stop: after price moves a certain distance, you move the stop to the entry price. This removes planned risk on that trade, but a gap can still cause a loss. Moving to break-even too early turns many small winners into zero results.
Every method shifts the balance between win rate and average win. The only fair comparison is expectancy over many trades, tested with the same entries. Choose one method, define it in writing and apply it consistently.
Worked example
Hypothetical example: long 40 shares at €100, stop €95. Risk per share = €5, so 1R = 40 × €5 = €200. Fees, spreads and taxes are excluded.
| Method | What happens | Result |
|---|---|---|
| A: Fixed target at 2R (€110) | Price reaches €110 | 40 × €10 = +€400 = +2R |
| A: Fixed target at 2R | Price reaches €105, then falls to €95 | −€200 = −1R |
| B: Half at 1R (€105), stop to break-even, rest at €110 | Price reaches €110 | 20 × €5 + 20 × €10 = €100 + €200 = +€300 = +1.5R |
| B: Same plan | Price reaches €105, then falls back to €100 | €100 + €0 = +€100 = +0.5R |
| C: Trailing stop €5 below highest close | Price closes at €118, then falls; exit at €113 | 40 × €13 = +€520 = +2.6R |
Method B wins more often in this example but earns less when the move continues. Method C earned most here, but in a sideways market it would often exit near break-even. None of these single outcomes proves which method is better.
Common mistake
Practice activity
You buy 100 shares at €50 with a stop at €48. Plan: sell 50 shares at 1R and move the stop on the rest to break-even. Calculate the total result in euros and R for two cases: (a) the rest is stopped at break-even; (b) the rest is sold at 3R.
Show solution
1R per share = €2; total 1R = 100 × €2 = €200. First target (1R) = €52.
First half: 50 × €2 = +€100.
(a) Rest at €50: €0. Total +€100 = +0.5R.
(b) Rest at 3R = €56: 50 × €6 = €300. Total €100 + €300 = +€400 = +2R.
Limitations: a single trade cannot show which method is better; compare methods over many trades with the same entries.
Key takeaways
- Fixed targets, partial exits, trailing stops and break-even stops all have trade-offs.
- Each method shifts the balance between win rate and average win.
- A break-even stop removes planned risk, not gap risk.
- Pick one written method and judge it by expectancy over many trades.
Next step
The next lesson explains leverage and margin, which decide how much capital a position ties up and when a broker may close it.
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