The sale of a stock after its price has rapidly risen in order to cash in on capital gains. Profit taking is characteristically associated with traders, who rush to take profits following a brief rally (short price run up). However, short- and long-term investors also take part for profit considerations.
The profit taking usually occurs when a large number of participants close some or all of their long positions to lock in immediate profits. The profit taking sometimes causes a temporary market downturn after a period of increasing prices as investors sell off their holdings to lock in gains. At the end of the profit taking, the stock or index will experience a degree of decline, before it returns to its general trend. The profit taking may initiate concurrently with the market correction against the overall move of the day, or at the end of a trading day before the closing of the exchange session.
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