Knowing where to exit a winning trade is just as important as knowing where to enter. Many traders excel at entries but struggle with exits, either taking profits too early and missing larger moves or holding too long and watching gains evaporate. Target-based exits provide a systematic approach to locking in profits.
What Are Target-Based Exits?
A target-based exit is a predetermined price level where you plan to close part or all of a profitable position. Unlike trailing stops that react to price movement, targets are set before the trade begins based on analysis of where price is likely to go.
Having clear targets removes emotion from the exit decision. When price reaches your target, you take profits according to plan. No second-guessing, no hoping for more, just execution.
Key Principle: Define your profit targets before entering every trade. If you do not know where you are going, you will not know when you have arrived.
Why Profit Targets Matter
Objective Decision Making
Without a target, the exit decision is subjective. You might exit too early out of fear or too late out of greed. A predetermined target makes the decision mechanical and emotion-free.
Expectancy Calculation
To know if a trade is worth taking, you need to compare potential profit to potential loss. Without a target, you cannot calculate expected value or risk-reward ratio.
Consistent Results
Systematic target-taking leads to consistent results over time. Random exits create random outcomes. The former builds an edge; the latter is gambling.
Methods for Setting Targets
Risk Multiple Targets
Set targets as a multiple of your risk. If you are risking $2 per share (stop loss distance), set targets at 2x ($4 profit) or 3x ($6 profit).
- 1R target: 1:1 risk-reward, conservative but high probability
- 2R target: 2:1 risk-reward, standard for most swing trades
- 3R+ target: For trending markets, let winners run
Example R-Multiple Target:
- Entry: $50
- Stop loss: $48 (risk = $2 per share = 1R)
- Target 1: $52 (1R profit)
- Target 2: $54 (2R profit)
- Target 3: $56 (3R profit)
Support and Resistance Targets
Place targets at significant technical levels where price is likely to pause or reverse.
- Previous highs or lows: Major swing points
- Round numbers: Psychological levels like $100, $50
- Moving averages: 50-day, 200-day MA
- Fibonacci levels: 38.2%, 50%, 61.8% retracements or extensions
Measured Move Targets
Project the size of a pattern or prior move to estimate where the current move might end.
- Flag pattern: Target equals flagpole length added to breakout point
- Double bottom: Target equals pattern height added to neckline
- Prior swing: Current move often equals prior swing in the same direction
Volatility-Based Targets
Use ATR (Average True Range) to set targets based on the stock's typical movement.
- 1 ATR target: Conservative, likely reached within a day
- 2-3 ATR target: For swing trades, several days of movement
- 5+ ATR target: For longer-term position trades
Position Management Rules for Targets
Rule 1: Only Take Trades with Favorable Risk-Reward
Before entering, calculate if your target provides at least 1.5:1 or preferably 2:1 risk-reward. If the math does not work, do not take the trade.
Rule 2: Use Multiple Targets
Split your position across multiple targets. Take partial profits at the first target, more at the second, and let a portion run with a trailing stop.
Rule 3: Respect Major Levels
If a major resistance level sits between your entry and target, that level becomes your first target. Do not expect price to blast through significant obstacles.
Rule 4: Adjust Targets Based on Market Conditions
In trending markets, use extended targets. In choppy markets, use conservative targets. Let market behavior inform your expectations.
The Multi-Target System
Professional traders rarely use a single target. A multi-target system locks in profits while maintaining upside potential.
Three-Target Example
- Target 1 (33% of position): 1R profit, quick lock-in
- Target 2 (33% of position): 2R profit, captures bulk of move
- Target 3 (34% of position): Trail with stop, catch extended moves
Benefits of Multiple Targets
- Guarantees some profit if price reverses after first target
- Reduces regret of exiting too early if trade continues
- Creates emotional satisfaction at multiple points
- Allows participation in both normal and extended moves
Track Your Target Performance
Pro Trader Dashboard analyzes how often your trades reach each target level, helping you optimize your exit strategy.
When to Adjust Targets
Reasons to Reduce Target
- Market momentum is slowing
- Unexpected resistance appearing
- Broader market turning against you
- Volume declining as price approaches target
Reasons to Extend Target
- Stronger momentum than expected
- Breakout through resistance
- Broader market supporting your direction
- Volume expanding on the move
When Not to Adjust
Do not adjust targets based on hope or fear. Adjust only when objective analysis shows your original assessment was wrong.
Targets for Different Setups
Breakout Trades
Target the height of the consolidation pattern added to the breakout point. Many breakouts move at least this distance before pausing.
Pullback Trades
Target the prior high (for longs) or prior low (for shorts). The previous extreme is often tested after a successful pullback entry.
Reversal Trades
Use more conservative targets. Reversals fail frequently, so bank profits at the first reasonable level rather than expecting extended moves.
Trend Continuation
Use extended targets and trailing stops. Strong trends can run much further than expected. Let some position ride with a trailing stop.
Common Target Mistakes
1. No Defined Target
Entering without knowing your exit point leads to inconsistent, emotional decisions. Always define targets before entry.
2. Targets Too Aggressive
Hoping for home runs on every trade means many trades fall short. Realistic targets get hit more often, compounding gains over time.
3. Ignoring Context
A 3R target in a choppy market is wishful thinking. Match your targets to current market conditions.
4. Moving Targets Higher
As price approaches your target, the temptation is to raise it. Stick to your plan unless there is genuine technical reason to extend.
Summary
Target-based exits provide structure and consistency to profitable trades. Set targets using risk multiples, support and resistance levels, measured moves, or volatility-based methods. Use multiple targets to lock in profits while maintaining upside potential. Only take trades where the target provides favorable risk-reward.
Remember that perfect exits are impossible. The goal is not to sell at the exact top but to systematically capture the majority of expected moves. A mechanical target system beats emotional decision-making every time.
Learn more: partial exit strategies and risk-reward ratio explained.