Last updated on March 6th, 2017
In this installment of trading exits, let’s look at probably one of the easiest no-brainer approaches to profit targets in trading.
This method is going to assume that you already know, in advance, what your probable maximum loss in the trade is going to be.
Stop Orders Are Unique
As I stated in an article on protective stop placements, these orders are placed in the market (assuming you place them in the market) as stop orders however they do act as limit orders as they are waiting at a set price to execute.
The reason I say “probable” is because once your stops are hit, they act as market orders and will be filled at the best possible price which could include slippage. The article on stop placement can be found linked at the bottom of this page.
I will use the exact same trade as I have in the other posts on profit taking exits which you can find linked at the bottom of this post.
This setup gives us a 60 pip differential from trigger to a price point that if reached, probably is a good sign this move is not going to work at this point in time.
What we will do is simply use one or more multiples of our risk to determine profit taking points in the move.
The key point is to ensure you have your initial profit target “in the queue” because in centralized markets orders are filled in a first in first out basis. It would be tough to see price reach your target, not get filled, and then head against you.
You can see here that price rockets through the profit target and banks you 60 pips worth of profit.
Have An Exit Plan For Profit Targets
The question now is how do you handle your position at the exits?
- Partial profits?
- All out?
- Trail your stop?
- If partial profits is your plan because you want a runner, how much did you scale out?
- If you scaled out, did you move your stop?
- Do you have another profit target in mind for the remaining position?
On this chart, we have scaled at profit targets of 2R or two times your risk ( 120 pips ) and again, what do you do with your protective stop for the remaining contracts?
Here we have a profit of 3R ( 180 pips )and as you can see, the market turned over and depending on how you handled this exit and your stop, you made some nice pip gains on the move.
I want to point out something on this chart though so direct your eyes to the green highlight. When you see momentum like this, ensure you keep your eyes open for weakness in the market. On this chart we have the push, range with bull/bear traps, the final push and a reversal candle.
If you are still holding long after seeing the reversal candle and after taking all the other information into account, you are about to give back about 170 pips. That is reading price action and is really outside the scope of this article but can’t be ignored.
Keys To Exit Success
The beauty of this type of profit taking when trading is that you can be extremely consistent on every single trade you take. Keep in mind the following:
- You must test this on any market you trade.
- You can add qualifiers such as first target must be below structure support/resistance
- You can have trading rules dictating what you do with your stop.
Once you have tested it and worked out all the details, the key point is do it consistently on every single trade. There will no longer be any question on how you are going to exit any trade that you take.
Without consistency and changing your rules on the fly, you will find it difficult to find much success in trading.