What is Profit Taking?

Profit taking is the act of selling stock to take advantage of a sharp rise in the stock price.

How Does Profit Taking Work?

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.

Why Does Profit Taking Matter?

Selling off shares, however, causes the price of a stock to fall, at least temporarily. Generally, though, profit taking is seen when there is an upward trend in the overall market.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

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