Taking Profits: How to Set Trading Profit Targets. http://www.financial-spread-betting.com/course/technical-analysis.html
PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! We’ve previously looked at stop loss strategies, and these include strategies such as the trailing stop which are not simply to avoid loss on a bad trade, but also can lock in profit as the trade proceeds. Now it’s time to look at a different approach, and that is to identify a profit target that you want the trade to make, and which will give you a point at which you will close the trade for a profit.
Do You Set a Daily Profit Target or Profit Target Per Trade? Ideally, for most trades you will have a profit target, and of course it is necessary if you want to work out a risk-reward ratio, as you have to project how much your trade can win if it is a success. With some trades such as catching a trend it may be difficult to set a target ceiling, but these are probably better managed with a trailing stop. Still, it is important for you to have at least a certain minimum profit in mind when you enter a trade so that you can access its of profitability and viability.
The first way to set a profit target is to make it a multiple of your risk, say three times or five times your expected risk. It’s easy to see that this may not be the best way to set a target. After all, while you may expect from the chart that the price is more likely to go in one direction than another, with no real reason for the target level it becomes more like guesswork.
The second way of setting a target seems more sensible. The price based target takes into account the volatility of the market, and the average true range. The average true range tells you how much on average you can expect the price to change, and provided you have chosen a financial security that is moving in the direction you want, you can set the price target by simply multiplying the daily range by the number of days you expect the move to last.
You might want to have an adjustable price target, which you can update as you see how the trade unfolds. This is the price action target, and it involves looking at how the trade has developed, whether it is starting to hesitate, or powering onwards. The advantage of setting a target in this way is that you can take into account market sentiment as you go along, which may result in you gaining a greater profit.
In a similar way to the price action target, you can also apply some technical analysis to the chart to identify target levels. This might be done by stretching out a Fibonacci set of lines for the previous trend before the pullback, for example, or by simply saying you expect this phase of the trend to go 25% higher than the previous one. It comes down to personal preference and your trading style. If the price is already been at these levels in the past, you may even be able to identify some support and resistance levels to help you anticipate the current move.
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