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How to Adjust Take Profit and Risk Management in Investment

Devin Halim Wijaya8 September 2025

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Investing is all about balancing the potential for profit with the possibility of loss. Many beginners forget that every investment carries risk because they are overly preoccupied with the potential profits. Moderation and balance in wealth management are highly valued in Islam. As stated in the Quran:

“And those who, when they spend, are neither extravagant nor miserly, but hold a just (balance) between those (extremes).” (Surah Al-Furqan: 67).

Managing take-profit strategies and risk management in investing are directly related to the principle of moderation which is emphasized in this verse.

Also read: Ethical Risk Management in Islamic Investment

Comprehending Risk Management and Take Profit

In order to lock in profits before the market shifts, investors who use the take-profit strategy set a predefined price level at which to sell an asset. To put it another way, profits are secured at the exit target. At the other side, risk management uses strategies like position sizing , portfolio diversification and stop-loss orders to limit possible losses. Each of the two components enhances the other. Profit-taking aids in securing gains and risk management keeps losses under control. Achieving equilibrium between the two is crucial due to the inherent unpredictability of markets as FasterCapital (2023) points out. Investors who lack a clear plan are susceptible to emotional traps such as holding onto a profitable trade until profits disappear or leaving it too soon out of fear of losing money.

Also read: Internal Rate of Return: Know Your Profit Goal

Risk and Return are Balanced

Every investment has a trade-off: greater risks typically translate into larger potential returns. Smart investors balance risk with their time horizon, financial objectives and personal characteristics rather than completely avoiding it. Market Masters (2023) highlights the idea of the risk-reward ratio which weighs possible profits against possible losses. The ratio is 1:3 for example if an investor is prepared to risk losing $100 in exchange for the possibility of making $300. A healthy ratio is generally defined as anything greater than 1:2 which guarantees that profits will eventually exceed losses. In this case diversification is crucial. An investor can lessen the impact of a single market downturn by distributing their investments across a variety of assets including stocks, sukuks and alternative assets. Vercillo (2022) emphasizes that striking a balance between risk and reward is a dynamic process that must adjust to shifting market conditions and individual circumstances rather than being a set formula.

Also read: How to Avoid Panic in Investment Losses

Useful Strategies for Adapting Take Profit and Risk Management

A number of strategies can be used to balance risk management and profit in daily investing. Realistic profit targets that are grounded in sound analysis rather than wishful thinking constitute the first step. For instance, it is unrealistic and dangerous to anticipate a 300% gain in a few months if a stocks average annual growth is 10%. Second, limiting downside exposure requires the use of stop-loss orders. In order to prevent a single trade from wiping out the portfolio stop losses are typically set at 5–10% of invested capital. Third, the portfolio must be reviewed on a regular basis. According to Cooke Wealth Management (2021) a strategy that performs well during one market cycle might not work during another. It may be prudent to reduce exposure to volatile assets and tighten stop losses during uncertain economic times. On the other hand, expanding profit targets during bull markets might enable investors to sustain the upward momentum for a longer period of time. Last but not least discipline is what keeps the plan cohesive. A lot of investors fail not because their plans are bad but rather because they give up when pressured. Given how quickly markets move it can be tempting to break the rules in the hopes of making bigger profits or out of a fear of losing money. Consistent investors differ from impulsive traders in that they maintain discipline in adhering to preset profit and risk thresholds.

Also read: Long-Term Investment Strategy for Hajj and Qurban Purposes

In Conclusion

At the core of intelligent investing is risk management and profit taking discipline. Decisions frequently become emotional in the absence of both which can result in needless losses or lost profits. While risk management safeguards capital by containing losses take-profit strategies enable investors to lock in gains. The ratio between the two must always change to reflect shifting market conditions individual objectives and risk tolerance. Investors are cautioned not to pursue excessive profits out of greed or to shun risks out of fear guided by the Qurans call for moderation. Investing can only become a responsible long-term means of accumulating wealth through well-balanced strategies.