Creating a new trading system is hard enough, but trying to identify the locations to take profits can take a long time of trial and error.
For all most all of us, this means losing a lot of money.
A few factors to keep in mind when trying to identify profit targets:
make the targets relative to the time frame you are trading
use Fibonacci tools when ever you can
always be aware of major support and resistance
use candle patterns as entry points
always consider economic data and its possible impact on your trade
be aware of the daily average range for the financial instrument you are trading
Make the targets relative to the time frame you are trading-
This factor refers to the realization that we cannot expect the same profits that can be achieved on a daily chart when using a 30 minute chart.
This component is quite simple to explain but often times difficult to follow. The main reason being that even though we may understand that there is a limit to a price move, we often times expect more and can hold too long. This situation is one of the reasons a winning trade can turn into a losing trade.
Obviously the stop loss that would be used on a daily chart is not the same as what should be used on a 30 minute chart.
Use Fibonacci tools when ever you can-
Using a Fibonacci retracement tool can help you determine a possible profit target and it will automatically adjust to the time frame you are using. The retracements are measured by using the high and low of a particular price swing on a chart, it will also calculate the extension “profit targets”.
The depth of the retracement will indicate the potential strength left in the move and can be used as a guide to determine the profit targets/ extension levels.
Always be aware of major support and resistance-
The last thing a trader wants to experience is placing a trade at major support or resistance. The reason is, it's so easy to find. Using a daily and four hour chart is one way to determine the major areas that could potentially cause price to reverse. Trading on a 30 minute chart for example and not looking at the larger time frames before placing a trade is such a common mistake to make but a very simple one to prevent.
Use candle patterns as entry points-
One of the first things we learn as a trader is how to read a candle stick chart. The simple fact is, they work. Candle patterns are easy to see and provide opportunities to identify stop loss levels and profit targets.
Always consider economic data and its possible impact on your trade-
This is one major element to trading that can cause the price to reverse direction and your trade.
If you have a stop too tight and slight over reaction to the news can stop your trade out prematurely.
On the hand if the reaction to the news in in your favor it can be the “fuel” you need to see price reach your intended target.
Be aware of the daily average range for the financial instrument you are trading-
Every trading instrument has a average of some type whether it is volume or price movement.
These can also include cycles. Cycles that repeat themselves. In the Forex market there are cycles and averages in price movement that should be taken into consideration when placing a trade.
What would happen if you entered a trade late? At the end of the daily average range.
You could experience a slow and sideways price action (that can be very exhausting) that will take a long time to either pay or stop you out. Either way, it is preferred to trade when the market is more active and with higher levels of volume and momentum.
Knowing the day average price range can also help you determine profit targets. It is a very good idea if day trading to take some profits at or before price reaches it daily average distance.
With some experimenting and practice, these concepts will help you determine the profit targets that are most effective for the financial instrument you are trading and the time frame you prefer.
For all most all of us, this means losing a lot of money.
A few factors to keep in mind when trying to identify profit targets:
make the targets relative to the time frame you are trading
use Fibonacci tools when ever you can
always be aware of major support and resistance
use candle patterns as entry points
always consider economic data and its possible impact on your trade
be aware of the daily average range for the financial instrument you are trading
Make the targets relative to the time frame you are trading-
This factor refers to the realization that we cannot expect the same profits that can be achieved on a daily chart when using a 30 minute chart.
This component is quite simple to explain but often times difficult to follow. The main reason being that even though we may understand that there is a limit to a price move, we often times expect more and can hold too long. This situation is one of the reasons a winning trade can turn into a losing trade.
Obviously the stop loss that would be used on a daily chart is not the same as what should be used on a 30 minute chart.
Use Fibonacci tools when ever you can-
Using a Fibonacci retracement tool can help you determine a possible profit target and it will automatically adjust to the time frame you are using. The retracements are measured by using the high and low of a particular price swing on a chart, it will also calculate the extension “profit targets”.
The depth of the retracement will indicate the potential strength left in the move and can be used as a guide to determine the profit targets/ extension levels.
Always be aware of major support and resistance-
The last thing a trader wants to experience is placing a trade at major support or resistance. The reason is, it's so easy to find. Using a daily and four hour chart is one way to determine the major areas that could potentially cause price to reverse. Trading on a 30 minute chart for example and not looking at the larger time frames before placing a trade is such a common mistake to make but a very simple one to prevent.
Use candle patterns as entry points-
One of the first things we learn as a trader is how to read a candle stick chart. The simple fact is, they work. Candle patterns are easy to see and provide opportunities to identify stop loss levels and profit targets.
Always consider economic data and its possible impact on your trade-
This is one major element to trading that can cause the price to reverse direction and your trade.
If you have a stop too tight and slight over reaction to the news can stop your trade out prematurely.
On the hand if the reaction to the news in in your favor it can be the “fuel” you need to see price reach your intended target.
Be aware of the daily average range for the financial instrument you are trading-
Every trading instrument has a average of some type whether it is volume or price movement.
These can also include cycles. Cycles that repeat themselves. In the Forex market there are cycles and averages in price movement that should be taken into consideration when placing a trade.
What would happen if you entered a trade late? At the end of the daily average range.
You could experience a slow and sideways price action (that can be very exhausting) that will take a long time to either pay or stop you out. Either way, it is preferred to trade when the market is more active and with higher levels of volume and momentum.
Knowing the day average price range can also help you determine profit targets. It is a very good idea if day trading to take some profits at or before price reaches it daily average distance.
With some experimenting and practice, these concepts will help you determine the profit targets that are most effective for the financial instrument you are trading and the time frame you prefer.
