A profit target is a price level where you will exit a winning trade and take your profits.
You sell a put spread for $200 max profit. Your profit target is $100 (50% of max).
When the position gains $100 in value, you exit and lock in the profit. You don't hold hoping for the full $200.
Greed kills trades. Traders who "let winners run" often see profits evaporate. Taking profits at predetermined levels is disciplined.
% Based: Take profits at 50-75% of max profit for spreads
Fixed Dollar: "I take profits at $500 for small caps, $2,000 for large caps"
Technical: Exit at a resistance level
Income Traders: Close at 50% max profit (collect half premium, move on)
Directional Buyers: Let 25-50% run, lock in 50-75%
Event Traders: Exit on event completion (earnings, Fed decision)
You need stops (protect downside) AND targets (capture upside). Without targets, you might hold losers too long and let winners shrink.
Profit targets give you something to work toward. You're not just trying to avoid losses; you're actively pursuing wins.
Related: Stop Loss, Risk Reward Ratio, Max Profit, Trading Plan
