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where should profit target be -- should it be pivot pt, gann level, fibonnacci level number ending in 00, hi of yesterday, close of yesterday...........am confused
Can you help answer these questions from other members on NexusFi?
Hard to say . I see some people that I would describe as scalpers and they dont wait to take profits > 1:1 risk but they get lots of small gains that add up and a stopout might be 2 times larger than most gains . They need to have like 80 - 90 % winners to stay ahead . That suits their style but generally the target , at least the 1st one with multiple contracts , could be just short of a swing level is logical . On the chart here the green arrow is the short and see that price stops near the swing low and thats always happening on all timeframes . The 2nd target here is a major low but Ill bail if a bar closes higher than the prior days high .
This question is as easy to answer as "what is the appropriate colour for a flower" (from the view point of a bee, LOL).
If you trade you need a concept which provides you an edge.
The concept would include
- a setup (all sorts of conditions that need to be met)
- a trigger (signal that triggers the position at a defined level)
- a stop-loss (point where the trade idea is no longer valid)
- a profit-target (depends on conditions above)
One thing leads to another, and there is no independent rule for a profit target. You will need to evaluate your trade idea via a backtest, by determining
- the win/loss ratio (average winner divided by average loser)
- the percentage of winning trades
Psychologically it is more difficult to trade a system with a low winning percentage and a high win/loss ratio. So you might try to find something that has a win/loss ratio between 1 and 2 with a high winning percentage. Even in this case your profit target should be further away than your stop loss.
"Where should your profit target be", without knowing your exact method and style, is equivalent to asking "how do I make money trading". Very ambiguous, highly subjective, etc.
If you are seeking advice on how to improve upon your existing method, you will need to share that method, example trades, screen shots, etc. Only then can someone offer some better advice.
Your profit target is set by your trading style. You might want to watch the MTF Webinar I did, I go over some basic trading styles. Are you a scalper? intraday trader? swing trader?
When setting a profit target, you should also consider your stop loss limit. The market will give you several "hints" of where a target and stop should be, you'll find to find which one "speaks" to you. When you come across a trade that does not have a favorable risk/reward, you should pass on it. Again, favorable is subjective. There is no simple, "right" answer, like "You should use fibonacci's to set targets".
I'll throw in my 2 cents, but I don't think you'll like my answer . . . .
When trading only 1 contract your target should be small, say 3 or 4 pips. The idea is to slowly build the account until you can trade multiple contracts. Use a stop that matches your target and don't over trade. Take at most 4 trades per day, 1 is best.
When your account size reaches a predetermined goal, say + $2000, then add a 2nd contract and keep with the same plan.
At the point the next goal is obtained, add a 3rd contract. Now things change.
When trading 3's like this, the first 2 contracts are your bread and butter, looking to grab those 3-4 pips as before. The 3rd contract will be different in that it is more flexible and can be used as you see fit as each trade develops. Ideally, you can let it run with the market and realize some nice gains with it.
But each trade is different and you have to play it by ear. One day you might be able to grab 40 pips, the next day only 2 with it. The great thing is that the first 2 contract are out with a profit, so the 3rd is a free trade. No pressure, no emotion.
Should that 3rd contract start moving nicely your way, move the stop to BE +1 and walk away for awhile.
whatever your target is -- "3 or 4 pips" the market may have already decided it has hit its resistance level and reverse before you can take profits -- hence my question. the market does not care what yr personal profit targets is -- it only cares where it is intending to go/stop/pause/reverse -- i actually no longer think this is a subjective question .. but still looking
And every strategy has it's own requirements, such as breaking support or resistance, crossing a pivot, etc. Most people are targeting those areas where the market will make a strong move, thus being the safest point to enter.
If you have a large account and can afford a large stop, then you may use a strategy that looks for bigger gains. Smaller accounts must have smaller stops and therefore must employ completely different strategies.
You will look from two different angles at profit targets and stops:
(1) The money management view: How much can you afford to lose, what is a decent reward-to-risk ratio
(2) The market view: Where is your trading idea no longer valid, where may price stop and reverse
Sometimes the two views are incompatible and you cannot put on a trade, sometimes you can reconcile the two by adapting position size in a way that your trade complies with money management and market stops.
The profit target is most difficult, because there are hundreds of ways to establish profit targets, to name some:
- Bollinger Bands, Keltner Channels, fixed percentage enveloppes
- trend lines or trend channel lines
- support on resistance such as prior highs and lows, fib retracements, fib extensions, opening range, today's midrange, balance point, murrey math lines
- floor pivots, weekly and monthly pivots, Woodie's or Camarilla pivots
- measured moves derived from size of prior swings, ABC corrections
- expansions of trading ranges
- round numbers
- rule of seven
- volatiliy based, range expansion bars
- volume stop, low volume bars, churn bars
- moving averages
- linear regression indicators
- areas where buy stops and sell stops are located
- point of control of market profile
and you can extend this list ad infinitum.
One way to avoid the question of the profit target is to trail you stop. This is particularly useful if you have a low probability trade with an extremely favourable reward-to-risk ratio (low winning percentage, but wins much higher than losses). You could have a look at the 2B or Turtle Soup setups, which fall under this regimen.
A scalper will do the opposite, look for a high winning percentage with a reward-to-risk ratio of about 1:1, so this allows for a profit target close to entry point.
It is a jungle and there are no traffic rules to follow in the trading universe. As Mike said, it is highly subjective.
