Take Profit / Stop Loss
Selling to lock in a gain is taking profit; selling to limit a loss is a stop loss — both set "when to sell" in advance to curb emotional trading.
In plain terms
Taking profit is "selling to pocket the gain when you have one"; a stop loss is "selling to cut the loss before it grows when you have one." Both set "when to sell" in advance.
People tend to get greedy on a gain ("will it rise more?") and procrastinate on a loss ("it'll come back, right?"). Take-profit and stop-loss set rules in advance to avoid being swayed by such emotion.
What it tells you
Take-profit and stop-loss show the truth that "selling is harder than buying." Setting when to sell in advance reduces emotional trading and prevents being wiped out by a single big loss.
A stop loss in particular is "a safety device for when your judgment is wrong." Admitting and cutting a loss is often better than holding on and growing it.
Formula
take profit = selling to lock in the gain once a target profit is reached stop loss = selling once a set loss limit is hit, to prevent a larger loss
What high or low means
A stop-loss rule prevents a single stock's loss from growing unmanageable. A take-profit rule curbs missing gains by being dragged by greed.
But setting the stop-loss line too tight gets you sold out on a brief swing; too loose and it cannot act as a safety device. Setting it to suit your temperament matters.
There is no "correct number" for take-profit/stop-loss. At what % to sell differs by person, stock, and strategy, so copying someone's threshold may not fit. (This explains a trading principle, not a suggestion of a specific trade.)
The price rebounding after a stop loss, or rising further after taking profit, always happens. The reason to keep the rule anyway is not "to be right every time" but "to avoid big failures."
Frequent stop-loss/take-profit raises trading costs and taxes. Consider the balance between the rule and trading frequency.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Take and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.