Three Methods Of Setting Trading Targets – Stock Trading Strategy
Posted by | Posted in Trading | Posted on 02-09-2010
As soon as you are making a trade the question quickly appears: How and when do you leave with a profit? Aiming targets has to be a very important part of your trading scheme, and this is the subject of the next article in our series Stock Trading Strategy.
Aims can be found on time (I’ll keep doing the trade for 3-week) or based on technically (I’ll stay in the trade until my slow moving average passes over my faster moving average) or based on profit (I’ll leave when I make the open profit of $1000 ), or found on price (I’ll quit of the trade when it get to my target price.)
Of the 3 ways each one has some pros and cons . Technical exits are always accessible and delete the element of private thought, but act well only in the strong trends of the stock market , cause deficit by congestion , and almost always leave a lot of money on the table . Found on time tools are effective at times but just as often are net losers , and so can not be seriously considered as a solo tool . Profit-based exits are able to teach a trader to take frequent profits but what happens when the trade continues far beyond your pre-resolute exit point ? This violates the easiest rule of trading: run as soon as you win .
The greatest means of leaving is to decide price targets but only when these are good based in the market structure and reflect the market’s existing support and {resistance matrix}. If your plan of trading {takes into account} the natural support and resistance of the market then your aim will be good and the opportunities of yours of taking everything out that the markets gives is even more higher then with arbitrarily chosen, arranged dollar profit aims (which tend to be driven by emotion ) or a technical moving average tool (which by definition is obliged to leave much money upon the table ).
How will you set profit targets according to market structure instead of an arbitrary dollar objectives? For some this is a difficult question however for the dealer who has created the understanding of multiple time period structure and the ability to project current support and resistance levels forward into the future , pointing targets is easily finished . The basic technique is to {use your higher time-period support} and resistance levels ( this should normally be one time-period higher than your trading time-period), and to direct your targets at the coming logical assist or resistance level over the current price.
Stock trading strategy as follows: Suppose you are day-trading the S&P E-mini contract. You’re using a five-minute chart and take a position using your favorite entry system . The market begins to work in your favor and enhance you have five contracts to put on a position you quickly accumulate a profit of $750 . You feel glad and turn a bit greedy and that makes you want to get profits quickly , especially as you see a slight retracement in thefive-minute chart. But, knowing that market structure is always at play, you step back for a moment and view the everyday and weekly charts. On your Drummond Geometry charts you can quickly see that your entry was close to daily and weekly support , at the last of the daily envelope and close to the weekly envelope bottom too. You can see that the logical target of this initial move is at the daily PLDot some nine full points away, and that the advancement of the 5-minute bar with its slight retracement is entirely common and continue with the thought that the market has {further upside}. You made a price target at the daily resistance and make an alert to sound when it is full filled , so that you are able to take profits here . You can then further assess if the market will reverse and move backward to the beginning assist level or stop and keep going to higher level of resistance.
One of the main points is that when researching market structure as opposed to arbitrary dollar value price objectives you mostly handle what the market is doing . As a stock trading strategy teaches, full control taken by you because you understand the structural objective at all times as the market goes between its higher time- period support and resistance levels.
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