How To Take Profits From Stocks? 4 Strategies You Should Know

Editorial Note: While we adhere to strict Editorial Integrity, this post may contain references to products from our partners. Here's an explanation for How We Make Money. None of the data and information on this webpage constitutes investment advice according to our Disclaimer.

Below are the four strategies to take profits from stocks:

20-25% rule. Consider taking profits when the stock price has risen 20-25% from the purchase price.
Eight-week hold. After an important breakout, the stock price increase can continue for up to 8 weeks.
Trailing stops. Let the market decide for itself when you should close a position. By using a trailing stop, you are not limiting your profit taking potential.
Fundamental analysis. Act Buffett style. Hold shares of successful companies for years. Then, changes in the fundamental background (of both individual companies and the broader market) can trigger profit-taking.

Trading is a journey filled with opportunities and pitfalls. The challenge lies in knowing when to secure your gains and avoid the pitfalls. In the words of IBD founder William J. O'Neil, it's about hopping off the elevator on one of the floors on the way up and not riding it back down. This article addresses a crucial aspect of stock trading—taking profits.

Start trading Forex now with zForex!

Your capital is at risk.

What is the best way to take profits from stocks?

What is the best way to take profits from stocks

Here are the four strategies to consider:

20-25% Rule. Set a predefined target for your profits. If the stock's value increases by 20-25%, consider using your gains to secure profits and manage risks effectively.
Eight-week hold. Patience can be a virtue. Hold onto the stock for eight weeks, allowing it time to potentially realize its full growth potential. This strategy aligns with the principle of giving the investment ample time to flourish.
Trailing stop. Employ a dynamic approach by setting trailing stops. As the stock price rises, adjust your stop-loss order to lock in profits and protect against potential downturns.
Fundamental analysis. Evaluate the stock's underlying fundamentals, such as earnings, dividends, and market conditions. If the fundamentals support further growth, you might choose to hold onto the stock for a longer period.

These four strategies offer different perspectives on when and how to take profits. Let’s understand them one by one.

20-25% rule

The 20-25% rule is a widely practiced strategy in stock trading. The principle is to sell a substantial portion of your position when a stock reaches a 20-25% profit from your initial purchase price.

This approach aims to secure significant gains, providing a cushion against potential market fluctuations while also allowing for the possibility of further growth. By adhering to this rule, traders strike a balance between capitalizing on profitable opportunities and maintaining flexibility for the stock's potential upward trajectory.

Eight-week hold

The eight-week hold strategy is grounded in capitalizing on rapid stock surges following a breakout, particularly when the increase is 20% or more within a short timeframe (1-3 weeks).

In such cases, traders are advised to maintain their position for a minimum of eight weeks, allowing the stock to demonstrate its ability to sustain momentum. Given the current scenario where the stock price has broken above $350, refraining from taking profits aligns with this strategy.

Holding for the designated period offers an opportunity to observe if the stock can continue its upward trajectory, potentially maximizing gains over the medium term.

Trailing stops

Implementing trailing stops involves tailoring decisions based on specific parameters, and the determination to take profits hinges on these predefined conditions.

As of now, it appears that the profit-taking trigger has not been activated, suggesting that the current market conditions haven't met the criteria set for realizing gains. Traders employing trailing stops should closely monitor the stock's performance and adjust stop-loss orders accordingly.

For a comprehensive understanding of trailing stops and how to utilize them effectively, consider exploring further insights in this informative article: What is a Trailing Stop Order?.

Fundamental

In fundamental analysis, external factors play a pivotal role in shaping decisions regarding stock positions.

If, for instance, a competitor like Morgan Stanley or Bank of America releases a weak report or if the broader financial sector underperforms relative to other sectors, it could signal a prudent time to consider taking profits.

However, in the present case, the fundamental background for GS Bank appears robust. Given the absence of negative reports from competitors and the overall strength in the financial sector, it is advisable to exercise restraint in taking profits.

Sound fundamentals provide a solid foundation for potential continued growth, reinforcing the rationale for maintaining the position and capitalizing on the enduring strength of the stock.

Profit-taking strategies only work if your broker supports them. Below is a comparison of stock brokers that offer advanced order types, fast execution, and tools essential for locking in profits efficiently.

Best stock brokers
	eToro USA	Plus500	eOption	Revolut	Interactive Brokers	Fidelity	Optimus Futures	Wealthsimple	SoFi Invest
Foundation year	2007	2008	2007	2015	1978	1946	2004	2014	2011
Account min.	50	EUR500					500
Interest rate	3,75		8.95%	0%-4%	4.83%	4.97%		1	1%-9.5%
Basic stock/ETF fee		$0.006	$0	0.12%-0.25%	0-0,0035%		Not specified
Min. stock/ETF fee		Not specified	$0	£1.00/€1.00	$1,00		Not specified
Basic futures fee	Not specified	Not specified	Not specified		$0,25	Varies	$0.25/$0.75
Min. futures fee	Not specified	Not specified	Not specified		$0,25	Varies	$0.05
Open an account	Go to broker Your capital is at risk.	Go to broker 80% of retail CFD accounts lose money.	Study review	Study review	Study review	Study review	Study review	Study review	Study review

Tips for taking profits from stocks

Track stock index. Stay informed about broader market trends by tracking relevant stock indices. Understanding the overall market direction provides valuable context for deciding when to take profits from individual stocks.
Follow the news. Keep a close eye on financial news and developments. News can impact stock prices, and being aware of relevant events helps you make informed decisions about when to capitalize on profits or adjust your positions.
Be aware when everybody is greedy. In the words of Warren Buffett, "Be fearful when others are greedy, and greedy when others are fearful." Recognize market sentiment and exercise caution when excessive greed prevails, as it may indicate an overheated market.
Take profits in stages. Consider a gradual approach to profit-taking by selling a portion of your position. This strategy allows you to secure some gains while maintaining exposure to potential further upside, striking a balance between realizing profits and staying invested.

For more in-depth insights and strategies like fixed take profits, percentage take profits, and trailing take profits by indicators, explore this informative article: Take Profit Strategies.

Each strategy offers a unique perspective on when and how to secure gains, providing traders with awell-rounded toolkit. Drawing inspiration from the wisdom of industry experts and incorporating practical tips such as tracking stock indices and staying abreast of market sentiment, this guide empowers traders to navigate the complex terrain of stock trading with confidence.

Don’t look for a perfect moment to take profits

As a trader with hands-on experience, my main recommendation is simple: don’t look for a perfect moment to take profits – it doesn’t exist. Over the years, I’ve learned that most mistakes are not made on entry, but on exit. If you open a position without a clear plan for how and why you’ll take profits, the market will eventually make that decision for you – usually at the worst possible time.

In practice, I prefer a flexible approach. I often lock in part of the profit earlier to reduce emotional pressure and protect capital, while leaving the rest of the position open to benefit from further upside. Markets can reward patience more than rigid targets. At the same time, I never look at price alone. Broader market conditions, sector strength, and how a stock behaves after strong moves matter just as much. When a rally starts to feel too easy or overly euphoric, that’s usually a warning sign, not a reason to get greedy.

My key advice is to treat profit-taking as a process, not a single decision. Scaling out, staying disciplined, and adapting to changing conditions consistently outperform attempts to sell at the exact top. In the long run, successful traders are not those who catch peaks, but those who protect gains and compound capital steadily.

Conclusion

Mastering the art of taking profits from stocks requires both discipline and strategy. By applying rules like selling after a 20–25% gain, leveraging the eight-week hold for successful breakout stocks, and using trailing stops, investors can lock in gains while minimizing regret and emotional decision-making. Integrating fundamental analysis also helps ensure that exits are grounded in a company’s real performance, as seen when a stock’s fundamentals begin to wane. Ultimately, the most powerful takeaway is that defining and executing a profit-taking plan transforms unpredictable markets into manageable opportunities—because in investing, consistent strategies win over impulsive actions every time.

FAQs

What role does market sentiment play in deciding when to take profits from stocks?

Market sentiment can significantly influence stock prices and profit-taking decisions. Recognizing when overall market optimism becomes excessive, often described as a period when 'everybody is greedy,' can help traders avoid holding onto positions during overheated markets. Cautious profit-taking during euphoric sentiment can help preserve gains and manage risk.

How can tracking stock indices assist in profit-taking decisions?

Monitoring relevant stock indices provides insight into broader market trends. By understanding the general direction of the market, traders can make more informed decisions about when to realize profits on individual stocks, particularly if major indices signal shifts in market momentum or increased volatility.

Are there benefits to taking profits from stocks gradually rather than all at once?

Yes, taking profits in stages allows traders to secure some gains while still benefiting from potential further upside. This approach can reduce emotional pressure, protect a portion of capital, and provide flexibility to adapt as market conditions evolve, rather than relying on timing a single exit perfectly.

Why is it recommended to treat profit-taking as an ongoing process instead of seeking the perfect exit moment?

Viewing profit-taking as a process helps traders stay disciplined and adaptable, avoiding the stress and risk of trying to pinpoint the exact market top. By scaling out positions and adjusting to changing conditions, traders are more likely to consistently protect profits and grow capital over time.

Did you like the article?

Editors' Top Picks and Insights

19 hours ago Andrey Mastykin

Hunting crypto owners: Why criminals have gone offline

#Crypto

1 day ago Eugene Komchuk

BitMEX is shutting down: Why Trump could not save the exchange

#Arthur Hayes #Crypto #BitMEX

1 day ago Anastasiia Chabaniuk

Do governments need crypto workers?

#Crypto

2 days ago Mikhail Vnuchkov

Brent nears $100: Why oil prices are rising

#Oil #Iran war #Brent

2 days ago Oleg Tkachenko

Gram Wallet launch: Can Telegram bring crypto to the masses?

#Pavel Durov #Crypto #GRAM

3 days ago Eugene Komchuk

AI without limits: How dangerous are neural networks?

#AI #OpenAI

All news

Team that worked on the article

Upendra Goswami is a full-time digital content creator, marketer, and active investor. As a creator, he loves writing about online trading, blockchain, cryptocurrency, and stock trading.

Learn about our editorial policies

Dan Blystone began his trading career in 1998 as an arbitrage clerk on the floor of the Chicago Mercantile Exchange (CME). He later traded bond and Eurex futures at proprietary firms such as Altea Trading, gaining valuable experience in high-frequency trading and risk management.

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data.

CFD

CFD is a contract between an investor/trader and seller that demonstrates that the trader will need to pay the price difference between the current value of the asset and its value at the time of contract to the seller.

Fundamental Analysis

Fundamental analysis is a method or tool that investors use that seeks to determine the intrinsic value of a security by examining economic and financial factors. It considers macroeconomic factors such as the state of the economy and industry conditions.

Risk Management

Risk management is a risk management model that involves controlling potential losses while maximizing profits. The main risk management tools are stop loss, take profit, calculation of position volume taking into account leverage and pip value.

Trailing Stop Order

A Trailing Stop Order is a type of order that automatically adjusts the stop-loss level as the market price moves in a favorable direction, helping to protect profits.

Take-Profit

Take-Profit order is a type of trading order that instructs a broker to close a position once the market reaches a specified profit level.

Top 5 companies for you