What it is:
Profit taking is the act of selling stock to take advantage of a sharp rise in the stock price.
How it works (Example):
Occasionally, investors will sell off their shares in a stock after the stock rises sharply. It may occur as a result of an event that triggers a rise in the stock or when a stock just follows the broad currents of a bull market. It may also occur when traders are looking for the opportunity to sell and even a small surge in the market brings new buyers willing to pay sellers' prices.