Definition
A profit target is a specific price or percentage gain, chosen before entering a trade, at which the trader intends to close the position and lock in the gain. It is the upside counterpart of a stop-loss.
By deciding the exit in advance, a trader replaces the in-the-moment question of when to sell — a question distorted by greed and hope — with a rule made calmly. The target becomes part of the written trade plan.
Why it matters
How it works
Before entering, a trader sets both a profit target and a stop-loss, then sizes the position so the reward justifies the risk. With options, the target may be a premium level, a percentage return on the cost, or a price in the underlying. Some traders place a limit order at the target so the exit triggers automatically; others scale out, selling part of the position at the target and letting the rest run. The discipline is to honor the rule: a target ignored because the trade is still climbing often turns a winner into a giveback.