Definition – What does Profit Taking mean?
Profit taking refers to an interruption in a strong trend that represents some traders cashing out on winning positions. Profit taking occurs in currency pairs that have experienced strong movements. Basically, a number of the traders take their profits out and inadvertently cause the price to dip, momentarily interrupting the primary trend.
ForexTerms explains Profit Taking
Profit taking is natural when a currency pair is rising or falling for an extended time period because traders see their chance to sell out for a profit. Profit taking is noticed because it can halt a strong movement. However, it is not always clear that an halt in the trend is profit taking or stemming losses. Because currencies can be shorted as well as going long, interruptions in uptrends are just as likely to be shorts cutting losses as longs taking profits (or the reverse for downtrends).
