Setting a Profit Target

In short

How to set a profit target using a risk/reward ratio against a known stop-loss, worked out on the same $60 XYZ trade from the previous lesson.

A profit target is the stop-loss's mirror image — a predetermined exit that locks in a gain instead of capping a loss.

Setting a target with a risk/reward ratio

Set alongside the stop-loss, before the trade is placed, a profit target defines exactly how much a trade stands to gain versus how much it risks.

A worked example

Continuing the previous lesson's XYZ trade: entry at $60, stop-loss at $56 (a $4 risk).


Entry price	$60.00
Stop-loss	$56.00 ($4.00 risk)
Profit target (2:1 reward-to-risk)	$68.00 ($8.00 reward)
Profit target (3:1 reward-to-risk)	$72.00 ($12.00 reward)

A 2:1 target sets the potential gain at twice the risked amount; 3:1 sets it at three times. Neither is inherently correct — they're a way of expressing how much upside a trade needs to offer before it's worth taking. A trader using a consistent 2:1 ratio doesn't need to win most trades to come out ahead — winning just over a third of the time, with losses capped at the stop and gains at twice that size, can still be profitable overall.

A pure ratio-based target is a starting point — it's often refined against the actual chart. A nearby resistance level (a price the stock has previously struggled to rise past) may sit closer than the ratio-based target, making it a more realistic level to expect. Once a target is hit, some traders exit the whole position; others sell part and let the rest run with a trailing stop (a stop that moves up as price rises, locking in more gain while leaving room to keep going).

Key takeaway: Setting a target in advance is about having a plan — a stock that runs well past it after a full exit means gains left on the table, just as one that reverses right at the stop means a loss that, in hindsight, was avoidable by a few cents.

Both halves of the plan — stop and target — are exactly what a managed product like AskProsper's Swing Shift Smart Portfolio automates next.

This lesson is educational content explaining standard trade-management concepts, not personalized investment or trading advice.