Setting profit targets

[MrNoodle]

Just starting to look at TA more seriously. I've been able to find lots of free info on Entry pts and on limiting downside risk with Stop Loss Exits.

Struggling to find much on setting profit targets.

Fair enough in many cases to target nearest S/R levels, but what's the approach? Is it "if distance of S/R from entry gives risk reward of 1:3" or whatever then go for it. Does one set targets shy of S/R to give better chance of reaching them, while still maintaining the desired R/R?

What if there is no nearby S/R, how to you set targets then?

Any answers/links much appreciated.

MrNoodle

 

[zigglewigler]

I'd recommend stop and reverse strategies, where you are always in. You have to be on your toes, but it eliminates that feeling of needed to grab before the market has given all that's on offer.

 

[Splitlink]

I'd recommend stop and reverse strategies, where you are always in. You have to be on your toes, but it eliminates that feeling of needed to grab before the market has given all that's on offer.

I don't know, zigglewigler, reversing can be a bad move in a strong trending market. I think that the use of a trailing stop or an average cut, get out and see what happens is better. Having to be in a trade, no matter what, is a stressful experience.

Targets are individual decisions, I never know what to do and I have to leave the trade with target limits on, as well as stops, because of work.- or close the trade. Quite often I choose the latter.

If you like trend lines, why not try a parallel line across the tops, to form a channel, then you may have the opportunity of buying back in at at a lower price? Or you can set a target at a previous top or bottom-

Split

 

[damianoakley]

Hi MrNoodle,

I agree with Splitlink in that profit targets are a personal decision based on the style of the trading strategy that you employ.

Personally, I don't use profit targets at all because I think that it goes against the golden rule of "cutting your losses short and letting your profits run." As a trader, if you can develop the discipline to just let your winning trades run with a trailing stop, then you are giving yourself the chance to really maximise on your most successful trades. By employing a profit-target method to the wrong type of trading strategy, you could end up many times taking your profit and then watching the market continue on strongly way past your exit point.

Profit targets are useful with certain styles of trading, but I would say that many beginner traders set profits targets because they would rather snatch the profit while it's there, rather than risk losing that profit by waiting for the trade to develop further.


Thanks

Damian

 

[Splitlink]

Hi MrNoodle,

I agree with Splitlink in that profit targets are a personal decision based on the style of the trading strategy that you employ.

Personally, I don't use profit targets at all because I think that it goes against the golden rule of "cutting your losses short and letting your profits run." As a trader, if you can develop the discipline to just let your winning trades run with a trailing stop, then you are giving yourself the chance to really maximise on your most successful trades. By employing a profit-target method to the wrong type of trading strategy, you could end up many times taking your profit and then watching the market continue on strongly way past your exit point.

Profit targets are useful with certain styles of trading, but I would say that many beginner traders set profits targets because they would rather snatch the profit while it's there, rather than risk losing that profit by waiting for the trade to develop further.


Thanks

Damian

I expressed my problem when I said that I have to go to work. I guess a lot of traders are not full time, so a decision has to be made prior to switching off the computer.. That means taking the profit or putting a stop underneath and placing a limit order above the position. I know this problem- it happens to me, almost, every day that I am in an index trade, because I don't like leaving these on overnight.

Trailing orders are great. The problem is that it is one of the services that SB companies do not supply- Fins doesn't, anyway. In my case, I do the afternoon and evening turn of a busy family business and am, quite often, unable to ring the dealer before the close. Anyone who has traded the FT knows that it can move drastically each way in the afternoon and many times I have been stopped out after the index has made twenty points and fallen back before the close. It really is exasperating!

So us workers have this problem. Only those full time traders who sit on their backsides all day watching the action are able to get the best out of day trading.

I have found that my life style is better suited to swing and position trading, coming to a decision at the EOD close and opening a trade the next morning. I let those trades run from day to day without a target until I see that the position is over bought/sold and put a limit. No definite rules, though.

Split

 

[damianoakley]

Hi Split,

For the record, I am a full-time trader that uses trailing stops, but I certainly don't sit at the computer all day monitoring my positions.

I spend up to 1 hour each morning (before the market opens) updating my stops and setting up orders for new trades. I hold positions for anything from 1 day to 12 weeks and I only check on the markets once at the beginning and end of each day.

If you do it right, trading can be worked safely and effectively around your life and your full-time job. Trust me, I 've been there and done it (!)


Thanks

Damian

 

[Splitlink]

Hi Split,

For the record, I am a full-time trader that uses trailing stops, but I certainly don't sit at the computer all day monitoring my positions.

I spend up to 1 hour each morning (before the market opens) updating my stops and setting up orders for new trades. I hold positions for anything from 1 day to 12 weeks and I only check on the markets once at the beginning and end of each day.

If you do it right, trading can be worked safely and effectively around your life and your full-time job. Trust me, I 've been there and done it (!)


Thanks

Damian

OK, present company excepted, then!

As a warning, not to you, obviously, but to others, trailing stops are not accepted by the exchanges and are managed by the broker. They are, therefore, subject to the risk that the brokers site may "down" at the time the stop is triggered. Very remote, I agree, but the risk is there.

Split

 

[damianoakley]

I would never leave a trailing stop to be managed by my broker because, as you rightly say, it presents some degree of risk.

I always adjust my stop manually each morning prior to the market open.


Thanks

Damian

 

[Legion]

Just starting to look at TA more seriously. I've been able to find lots of free info on Entry pts and on limiting downside risk with Stop Loss Exits.

Struggling to find much on setting profit targets.

Fair enough in many cases to target nearest S/R levels, but what's the approach? Is it "if distance of S/R from entry gives risk reward of 1:3" or whatever then go for it. Does one set targets shy of S/R to give better chance of reaching them, while still maintaining the desired R/R?

What if there is no nearby S/R, how to you set targets then?

Any answers/links much appreciated.

MrNoodle

Hi Mr noodle, im workin on the Grail and having bloody big headaches watching my system get minced after good profits I have taken the decision to Use the B I Z method. Taking the view to change when any 2 of three timeframes line up, for sessional moves, reversals. Or to simply take profits. Early days but makes sense. Its flexible/ dynamic / fluid and based on what the markets actually doing and not fixed on a fixed target.

You can see with forex especially, that banks having different timezones covered around the globe enables them to keep on watchin events unfold, making it easier for them to take advantage of these time zone sessional moves / opportunities.

Good luck.

 

[Mr. Charts]

There is a lot of talk about risk:reward ratios of 1:3 or whatever ratio someone chooses. Usually it is based on support/resistance levels. This always sounds quite plausible and logical and again is one of those many weak concepts that people find very attractive because of its misleading simplicity and ease of application.
Do many people consider the %age probability of each of these levels being reached?
Most believe there is a 50/50 chance. Most of the time that is pure wishful thinking.
In a long with support say, 15c away and resistance 45c away, why on earth should anyone believe the probability of each being reached is 50/50?
It may well be that the %age probability of resistance being reached is only 20% and of price falling to support is 80%. That rather messes up the so called R:R ratio.......and how can you even guess at what the %age probability is anyway? With considerable experience you might have a rough idea, but anyone who thinks probability is 50/50 and "calculates" R:R accordingly will not get far in this business.
People pick up a lot of so called advice from books and web sites which is just plain erroneous
Thinking inside the box, keeps people inside the box and few progress outside it.
Richard

 

[Splitlink]

There is a lot of talk about risk:reward ratios of 1:3 or whatever ratio someone chooses. Usually it is based on support/resistance levels. This always sounds quite plausible and logical and again is one of those many weak concepts that people find very attractive because of its misleading simplicity and ease of application.
Do many people consider the %age probability of each of these levels being reached?
Most believe there is a 50/50 chance. Most of the time that is pure wishful thinking.
In a long with support say, 15c away and resistance 45c away, why on earth should anyone believe the probability of each being reached is 50/50?
It may well be that the %age probability of resistance being reached is only 20% and of price falling to support is 80%. That rather messes up the so called R:R ratio.......and how can you even guess at what the %age probability is anyway? With considerable experience you might have a rough idea, but anyone who thinks probability is 50/50 and "calculates" R:R accordingly will not get far in this business.
People pick up a lot of so called advice from books and web sites which is just plain erroneous This thinking inside the box, keeps them inside the box and few progress outside it.
Richard

I agree with you 100%. Why, indeed, should a price have a better risk/reward ratio in one spot and not in another? How can one tell, in a congestion area, whether a price will break out of it, or not? Yet, I have read many posters claim that they will not look at a trade if it does not offer a 2:1, or 3:1 risk/reward ratio. All my trades start off, at first, with the intention of getting it into profit and then letting it run for as long as possible.

Split

 

[Mr. Charts]

Yes, absolutely, let the profitable trades run.
Look after the flowers and remove the weeds when they are small.
The approach of "calculating" R:R by S/R levels is one of the many reasons would be traders fail.
It's symptomatic of the attitude that the market is something a trader can impose his opinion on.
The market doesn't care about you, or your beliefs, opinions etc. Those who hold "opinions" which are unchanged by the evidence in front of their eyes are doomed. As are those whose emotions and egos control their actions.
Richard

 

[yacarob1]

I have always calculated R/R after the event and never before.

I trade according to a set of personally constructed rules and enter and exit the market according to those rules.

R/R varies enormously on a trade by trade basis but over a series of 100 trades I would expect to be coming out somewhere between 2/1 and 3/1.

Anything more than 3/1 would be nice but less than 2/1 might lead me to question my strategy and approach.

As to approximate target profit on any trade, it depends on the individual stock and its general behaviour - volatility etc.

Sometimes I might expect a dollar, 50 cents, 1% of stock price or even just a few cents if the stock value is low.

My expectation levels are not that important to me anyway, reality after the trade is all that matters.

 

[Mr. Charts]

Interesting approach - good to see sensible posts - which brings me to the next concept. If you know how to keep your risk tiny, then you don't even have to consider reward as the ratio will be very strongly in your favour. Obviously, however, if you are considering going long close to resistance, you pass up on the trade -and the same with shorts close to support.
Richard

 

[Splitlink]

You got to know when to hold 'em
Know when to fold 'em
Know when to walk away
Know when to run..

Kenny Rogers

Split

 

[FXTraderChat]

I use 4 hour pivot levels on my 3 minute charts for target areas.

For 4 hour charts, use weekly pivot levels.

For daily charts, use monthly pivot levels.

I like pivot level targets more than fibonacci targets, because they are not as subjective in my opinion. I usually pick a target price 5-10 pips inside of the pivot line.

If you need a free pivot level calculator go to
http://jimsoucy.camp9.org/Default.aspx?pageId=676774

Hope that helps you.

FXTraderCHat
See my trades at http://www.fxtraderchat.com

 

[belekas]

Just starting to look at TA more seriously. I've been able to find lots of free info on Entry pts and on limiting downside risk with Stop Loss Exits.

Struggling to find much on setting profit targets.

Fair enough in many cases to target nearest S/R levels, but what's the approach? Is it "if distance of S/R from entry gives risk reward of 1:3" or whatever then go for it. Does one set targets shy of S/R to give better chance of reaching them, while still maintaining the desired R/R?

What if there is no nearby S/R, how to you set targets then?

Any answers/links much appreciated.

MrNoodle

ADR/AWR/AMR.
Key S/R levels.
MOT's. (masured objective target).
Market Close.

...all ofc depending on current market situation.

Regards.
Bel.