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Profit Taking

Written By
Paul Tracy
Updated September 30, 2020

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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