You’ve taken a trade and it’s moved favorably in your direction, producing a paper profit. At some point that paper profit needs to be locked in, otherwise the profits could evaporate, or worse yet, turn into a loss. Day traders close all positions before the closing bell, so while exiting at the close is one option, here are three other scenarios to take profits while day trading.

The Price Is Close to Strong Support or Resistance

Take profits at an established area/level where the price tends to reverse. In Figure 1 Apple, Inc. (AAPL ) stock made multiple attempts to drop below the 118.80 region, but it couldn’t. This indicates a support area. If in a short position, exit slightly above the support area.

While there is a possibility the price could continue falling, taking profits in this area isn’t a bad idea. If the price does continue to fall, support will be broken and another short trade can be sought out.

Figure 1. Apple Tick Chart (512) Showing Support

Source: Thinkorswim

​This method should be combined with trend analysis. During a strong uptrend, resistance is more likely to be broken (than during a range ), so wait to see if the price does in fact break through it. If the price declines off the resistance area, exit long positions immediately. During a strong downtrend, support is more likely to be broken than during a range. In this case, wait to see if support is broken in the hopes of extracting a bit more profit. If the price moves higher off the support area, exit the short trade.

The Price Stalls and Reverses

Taking profit slightly above support (for shorts) or slightly below resistance (for longs) involves studying the tendencies a stock, forex pair, or futures contract has exhibited so far during the day. As indicated above, there are times it may be more profitable to not exit at support or resistance. An exit is still required though. If the price runs strongly in your favor, watch for the price to stall.

A stall (or consolidation) is a collection of three or more price bars that don’t progress the trend—they move more laterally. On the left, in Figure 2. the price is rallying. Assume you are long. When the price moves mostly sideways for at least three bars, the price momentum has stalled. Place an exit just below the high point of the stalled bars. Alternatively, get out of the trade if the price falls below the low of the three bar (or more) consolidation. If short and the price stalls for three bars or more, place an exit near the low of the consolidation, and/or exit if the price moves above the high point of the consolidation.

Figure 2. Apple Tick Chart (512) With Consolidations Acting as Exits

Source: Thinkorswim

A stall or consolidation doesn’t mean the price will reverse; it is just one profit taking opportunity. If you believe the uptrend is likely to continue after the stall (and you are long) exit only if the price drops below the low of the consolidation. That way, you protect profits. But if the price moves higher, you can profit further and look for another exit at a higher level.

Take Profits Before Major Economic News Events

A top day trading scenario to take profits is right before a major economic or company-specific news release. This is done to protect profits, as opposed to try to get the best exit price. Day traders typically focus on capturing normal market movements throughout the day. A major economic news release—such Non-Farm Payrolls or an FOMC announcement—can cause massive price moves. These moves may result in significant losses. Day traders are better off taking profits right before the news announcement to avoid the risk of losing all their profit, and/or sustaining a large loss. Once out of the trade, the trader can then look to re-enter based on the trend that develops following the announcement (See: Trading the Non-Farm Payroll Report ).

The Bottom Line

Taking profits at support or resistance requires attention to the tendencies of the market being traded, as does exiting when momentum slows or reverses. While there are always opportunities to get in to other trades, there may not be another opportunity to take a profit at advantageous levels such as these. Monitor economic and company specific news and exit before it is released. These events can cause massive price moves, which day traders are best to avoid. Book your profits, and look to re-enter after the news release. These profit taking methods won’t work in all day trading scenarios—sometimes there isn’t a consolidation or relevant support/resistance. These are simply top profit taking scenarios you may consider adding to your trading plan .