Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Profit Taking

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.

Why it Matters:

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.