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Profit Targets

  • #1
  • First Post: May 21, 2006 10:54am May 21, 2006 10:54am
Hi All,

I have been trading for a bit over a month and I am really starting to get my own system hammered down, but I am having a little bit of an issue deciding how to set profit targets for my individual trades.

As an example: I am short in cable at the moment (from 1.8737), and I have a profit target set at a resonable level (1.8703)...I was a bit frustrated on friday as the price of cable dropped to 1.8705 before recovering to close at 1.8800, meaning I have now shifted from a nice profit to a loss.

I think (hope) that the dollar will continue to recover a bit tomorrow to bail me out but I would like to get a bit smarter about setting my profit targets.

My question is this:

Are profit targets simply subjective with regards to the type of trade you are expecting (i.e. choose to gain 30 pips/trade) or is there a more technical way of choosing the profit target? I have been trying to use Support/Resistance levels to set my targets, combined with the number of pips I would like to take out of the market for that specific trade, but I would like to devise a more solid method of setting my profit targets.

How do you guys go about doing this?

Kind Regards,
Mike
  • #2
  • May 21, 2006 11:42am May 21, 2006 11:42am
Well, I just realised that cable is currently in a Head and Shoulders pattern and according to my research, profit target should be the same distance from the head peak to the neckline, extended downward from the neckline.

Are there any other general methods for setting profit targets in trades which are not in such a distinct pattern?
  • #3
  • May 21, 2006 12:02pm May 21, 2006 12:02pm
Quoting mwhalber
Hi All,

I have been trading for a bit over a month and I am really starting to get my own system hammered down, but I am having a little bit of an issue deciding how to set profit targets for my individual trades.

As an example: I am short in cable at the moment (from 1.8737), and I have a profit target set at a resonable level (1.8703)...I was a bit frustrated on friday as the price of cable dropped to 1.8705 before recovering to close at 1.8800, meaning I have now shifted from a nice profit to a loss.

I think (hope) that the dollar will continue to recover a bit tomorrow to bail me out but I would like to get a bit smarter about setting my profit targets.

My question is this:

Are profit targets simply subjective with regards to the type of trade you are expecting (i.e. choose to gain 30 pips/trade) or is there a more technical way of choosing the profit target? I have been trying to use Support/Resistance levels to set my targets, combined with the number of pips I would like to take out of the market for that specific trade, but I would like to devise a more solid method of setting my profit targets.

How do you guys go about doing this?

Kind Regards,
Mike
Profit targets...hmmm...always a difficult question...I believe PTs are more subjective than anything...however, you will learn quickly that AIMING for a target is never a constant thing...what you're always looking at is a moving target...

in your case, you probably should have exited the trade differently taking profit at what would be a reasonable level and bringing your stop to break even...if you were up to 30 pips on a relatively quick move, this is hard to judge, but if you reach 30-pip profitability after a longer move (a few hours with a strong trend to back it up), it's always a good idea to CLOSE 1/2 of your position and move your stop to break-even for the other half...you will find that you will get stopped out A LOT with this method, but you'll also find that you've lost a lot less than you've won...at this point, you're down more than 60 pips...that's twice as much as your max profit.

The addage, "let your profits run" is absolutely key...at least by taking some profit off the table, you've ensure yourself a psychological win, and by setting the stop to break-even, you've guaranteed it...with a decent chance that your luck (and your position) will continue to grow.

I think a more important question for you is where are your stops...60 pips sounds like you held on a little too long...if you saw the previous high was almost 300 pips above where you entered, you would probably have seen that the entry point you had was a bit risky, and your stop should have been tighter...not to say that your entry was horrible, it was in the direction of the trend, however it was close enough to a psychological number AND large fib move that your profit target/break-even move should have been tight.

Whether or not the dollar will recover is a difficult thing to say...the fundamentals show some tendency still, so you may be ok, but it probably would have been a GREAT idea to at least take a 20 pip loss before shorting again at 8775 (a decent psychological number to play)...it still would have been in the direction of the trend, and you would have recovered from the 20-pip loss quite nicely.

Tough question, though...
  • #4
  • May 21, 2006 12:23pm May 21, 2006 12:23pm
Quoting mwhalber
Hi All,

I have been trading for a bit over a month and I am really starting to get my own system hammered down, but I am having a little bit of an issue deciding how to set profit targets for my individual trades.

As an example: I am short in cable at the moment (from 1.8737), and I have a profit target set at a resonable level (1.8703)...I was a bit frustrated on friday as the price of cable dropped to 1.8705 before recovering to close at 1.8800, meaning I have now shifted from a nice profit to a loss.

I think (hope) that the dollar will continue to recover a bit tomorrow to bail me out but I would like to get a bit smarter about setting my profit targets.

My question is this:

Are profit targets simply subjective with regards to the type of trade you are expecting (i.e. choose to gain 30 pips/trade) or is there a more technical way of choosing the profit target? I have been trying to use Support/Resistance levels to set my targets, combined with the number of pips I would like to take out of the market for that specific trade, but I would like to devise a more solid method of setting my profit targets.

How do you guys go about doing this?

Kind Regards,
Mike

Mike,

I was actually in the same trade as you. Here is what i did... I went short because i thought support would break in the EUR at 1.27 & Cable 1.87. We came close but did not get through those bids. Your TP should have been around 1.8675 to make it worth your time and risk. I think if the price got that close to support it would likely have zoomed down through it. I think shorts started to cover because support was not broken and then people started booking profits later in the day. The cable move was not huge so i wouldn't be too worried about your position. I actually shorted more on the close to average my position out. Now a small move down will book nice profits. If it rises too much then i will cut my losses and fight another day. Hope this helps and yes we should have both used stops and taken our small profit.
  • #5
  • May 21, 2006 12:26pm May 21, 2006 12:26pm
Make sure that your targets are bigger than your stops. This translates to 'Winners Bigger Than Losers'. Something I struggled with for a long time, though an absolute must.

Try and enter trades where your stop is protected by being in a good value zone. If you long at 1.7979 and there is a strong support level at 1.7960, placing a stop at 1.7955 would be protected by this strong support level - there would be a good reason to believe that price might not reach your stop.

Targets depend alot on what time frame you are trading. Check the time frame above your entry time frame for clues and check for possible barriers ahead. If there is a major resistance level at +45 pips from your entry, it would be sensible to aim for that or just below rather than 10 pips above it.

First you need to define your system. What time frame/s you are using. How many pips are you risking (stop) to get how many pips profit (target).

I always write down my target and reasons for choosing it straight after entry. This helps be stop break the rules and take an EBT (Exit Before Target).

Also a key issue to decide is how you move your stop if the trade progresses in your favour. This questions opens a whole can of worms. It is often tempting to move your stop to break even to soon and ending up with a lot of break even trades.

Most important is to stop trying to be right or pretend you know what is going to happen next. Some good entries will lose, some bad entries will win. It is very important to stick ridgidly to a system so you can check over a sample if it is profitable. Try and measure your trades not just by profit / loss but also by how you peformed thoughout the trade process - Did you stick to your rules ?

Suggest you read either of Mark Douglas's books.
  • #6
  • May 21, 2006 1:05pm May 21, 2006 1:05pm
Hi,

I believe exiting trades is a more psychologically difficult decision then entering a trade. I have tried almost every possible technical method to get out of trades. For me just didn't work! What I use currently, and works wonders for me, is to move to breakeven as quickly as possible (this is James suggestion - thanks James ).

So how I do it now: When price goes into profit at the same distance as the stop loss, I close half of the position and move stop to breakeven! There you go! You have everything, you have some profit cashed in, your winner is still running and most importantly you are psychologically relaxed cause you cannot lose anymore!

Hope it helps,
-soso
-soso
  • #7
  • May 21, 2006 3:31pm May 21, 2006 3:31pm
I am extremly simplistic with my target pricing policy. I trade off confluence of support/resistance, and I select my TPs depending on what time frame such counfluence have ocurred: If I get a bounce off 1H chart's elements confluence, then my TP is X pips. If the confluence is on the 4H chart, then it's X multiplied by 2. If it's the Daily, then it's X multiplied by 4, and so on.
  • #8
  • May 22, 2006 1:49am May 22, 2006 1:49am
Thanks all. I have used your advice on Cable at the moment, half my position was booked at a profit this morning, and the other half is riding, hopefully down to the head-and-shoulders bottom (neckline to peak B.)
  • #9
  • May 22, 2006 2:12am May 22, 2006 2:12am
Quoting mwhalber
Thanks all. I have used your advice on Cable at the moment, half my position was booked at a profit this morning, and the other half is riding, hopefully down to the head-and-shoulders bottom (neckline to peak B.)
See i doubled up on my position and i only needed half the move to get to break even. This works most of the time and not a big deal if your not over leveraged. I dumped 1/2 for a small profit and the original position is gaining big now. Just a thought for your next trade. Either way we both came out ahead on this one.
  • #10
  • Aug 30, 2014 1:41pm Aug 30, 2014 1:41pm
what if i told you poor profit targets can cost you money,would you believe it ?
  • #11
  • Last Post: Aug 31, 2014 2:12pm Aug 31, 2014 2:12pm
just use the fib extensions, target 1.618, thats about standard in the industry,
then, have a lot of patience
Bulls are stupid Animals!especially when Im short!
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