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Profit taking refers to the act of selling all or part of a position in an asset to realize gains after a significant price increase. Traders and investors often engage in profit taking when they believe that an asset has reached a short-term peak, locking in gains before a potential price correction or downturn. While profit taking can secure returns, it may also result in missed opportunities if the asset continues to appreciate.
An investor sells shares of a technology stock after it rises 20% in a month, choosing to lock in the gains through profit taking.
• Selling assets to realize gains after a price increase.
• A strategy to lock in profits and reduce exposure to potential price declines.
• Can result in missed opportunities if prices continue to rise.
To secure gains after a significant price increase and reduce the risk of losses if the market reverses.
Investors may miss out on further gains if the asset’s price continues to rise after selling.
Widespread profit taking can lead to price corrections or increased selling pressure in the market.
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