Profit Targets?

[PaddyMcTaff]

Am slightly confused about how you are supposed to set profit targets, if (as seems to be fairly widely accepted) past price performance does not predict future performance... 😕

Any comments much appreciated!

 

[TWI]

Try to find something generic. Some may use certain % of ATR. I have found the best way is to stagger the proft targets so you take out chunks, with the last being allowed to run more than the first on some sort of trailing stop. I would avoid fixed values as when underlying price doubles a fixed value will not.

 

[PaddyMcTaff]

Thanks twalker. Forgive my ignorance but what is ATR?

 

[PaddyMcTaff]

Its ok, got it thanks. Any other comments on targets?

 

[damianoakley]

Hi,

I would suggest being very careful with profit targets.

The golden rule of trading is to: "cut losses short and let your profits run."

Many people decide to set profit targets because in their minds they prefer the feeling of taking a profit when it's there, rather than risk a profitable trade dropping back to break-even or falling into a loss.

I am not saying that profit targets are a bad idea because it all depends on the system you are trading, but when deciding on profit targets it is vital that you match the risk/reward of your trades with the expectancy and overall strike rate of your strategy.


Good Luck

Damian

 

[Trdr]

I don’t use Money Management, Risk/Reward ratios etc which is what your question has more to do with, I work with fibos.

I also don’t think in terms of ‘Profit target’ rather Price target, and the Fibonacci Price Levels (Retracement) tool works in fact based on ‘past price’ to *predict* Target future Prices.

Since I don’t trade stocks I have limited experience using the fibo tool on them, what I’m thinking of here is the propensity of many stocks to ‘gap’, however working with W and M charts should reduce gap noise.

There’s a great deal of fibo info on the web, here on T2W, and see also:
http://www.moneytec.com/forums/f33/fibonacci-links-6660/

 

[garethb]

Its impossible to be generic about how to set a profit target. It is just part of an overall system or plan. Think of the concept of "exit plan". There are a number of general approaches including scaling out as twalker describes, fixed price target, trailing stop etc.

What you use is a function of the overal trade plan and goes hand in hand with entry point, stop (if you use one) etc.

Actual expectations of what a price target might be only come with experience and some people work very successfully without ever really predicting a target.

If you are trading a range or entering on a retracement within a trend, for example, then some form of target is easier to set than if you are buying a breakout to an all time high as there is no price history at these levels.

You have to find an overall plan which works for you.

Best of Luck

Gareth

 

[TWI]

Its impossible to be generic about how to set a profit target

I use the same code across all markets for exits and by using % and price ratios it becomes generic rather than using a fixed value which definitely is not. The only systems where I do not use this methodology are the very short term intraday ones where I have a fixed value or timed exit.
What I have found is that it makes sense to keep the first fractional profit take fairly close to entry to ensure that if this level is reached and then goes against me, then the trade will be close to break even on a stop. some may dispute that this will damage overall profitability but it actually does not as when you institute these sorts of measures the equity curve is actually smoother and so makes it easier to increase bet size. For me the important thing is to get as smooth a return as possible so I can confidently push the size. If you have a system that makes money but occassionally also loses a large amount it is far,far harder to increase bet size and so the system limits itself via your own fear. I like to have a system where the only limitation is due to slippage considerations.

 

[damianoakley]

If your system involves a breakout strategy, it can be possible to use a generic technique to define a price target.

For example, if a stock breaks out of a trading range that was previously moving between $20 and $25, then when the stock breaks above $25, your price target would be a "measured move" of +$5 - ie - $30.

The reason these measured moves often work is because the markets tend to move in equal strides when they rise or fall.

Of course, the above technique does not work every time because trading is not an exact science, but measured moves can be a good way of defining a price target if it fits with your overall strategy.


Thanks

Damian

 

[garethb]

Am slightly confused about how you are supposed to set profit targets, if (as seems to be fairly widely accepted) past price performance does not predict future performance... 😕

Any comments much appreciated!

Reading your post again I think it's worth pointing out that most people on here probably do feel that past price performance (at particular moments in time at least) does predict future price performance. Doesn't mean it guarantees it or exactly quantifies it, but if you don't think future price is predicted by anything you see in past price why would you enter a trade?

I don't disagree that knowing how far price will move is not trivial.

Regards

 

[crazy trader]

I personally prefer a trailing stop set to some % as I do not have the time to day trade as my account isn't large enough yet. This method allows me to set a % loss that I am willing to take on the trade and then it runs until it back down to this level.

I do review each stock on a daily basis however to make sure that we haven't stagnated. I use the 2 week rule on the stagnation point. Meaning that if a stock is within 2% of it's average for a week I will generally let it loose and go onto the next stock.

 

[damianoakley]

I agree with the idea of a trailing stop as opposed to taking a profit at a set profit-target.

For me trailing stops allow you to cut your losses and run your winners to unlimited potential - the golden rule of trading as we all know.


Thanks


Damian

 

[PaddyMcTaff]

Reading your post again I think it's worth pointing out that most people on here probably do feel that past price performance (at particular moments in time at least) does predict future price performance. Doesn't mean it guarantees it or exactly quantifies it, but if you don't think future price is predicted by anything you see in past price why would you enter a trade?

Regards

I completely agree with you as surely the majority, if not all technical analysis is based on past price behaviour. The reson that I said in my first post 'as seems to be quite widely accepted' is only because you do tend to quite often hear people saying (or writing) that past price behaviour does not predict future behaviour. If that were true then the only thing to go on would be fundamentals..

Thanks for all the replys by the way! 🙂

 

[Charlton]

TA is designed to work by market architects

I completely agree with you as surely the majority, if not all technical analysis is based on past price behaviour. The reson that I said in my first post 'as seems to be quite widely accepted' is only because you do tend to quite often hear people saying (or writing) that past price behaviour does not predict future behaviour. If that were true then the only thing to go on would be fundamentals..

Thanks for all the replys by the way! 🙂

PaddyMc Taff

Indeed technical analysis is useless if it does not, at least to some extent and for a period, to suggest the direction of the market, entry and exit points.

The fact that TA continues to be used by most traders suggests that it can achieve this aim to a certain extent and for a certain period.

Why do I qualify this ? It is because the patterns in past price behaviour, continuation of trends and S/R levels, will work if the market continues to function in the same way. If those professional traders who can influence the market by virtue of their buying/selling power choose to alter the trading characteristics of some stock, currency pair etc then our TA will fail to produce the goods as before. The market characteristics have changed for a time.

However it is generally not to the advantage of the professionals to alter the characteristic of the market too much, even assuming they can do this for any long period of time, because it is easier for them to profit by maintaining the status quo. Predictability in S/R levels, likely regions in which stops are set and seemingly predicable trends allow them to accumulate or distribute with ease.

To gain an edge requires one to spot what is really happening in the market, behind the apparent and public face.

Charlton

 

[timsk]

To gain an edge requires one to spot what is really happening in the market, behind the apparent and public face.

Charlton,
Hole in one!
This is, surely, the essence of what T.A. is all about?
Much is written on these boards about what indicators a trader should use and what timeframe is best and so on and so forth. The trader who has the skills and the knowledge to know at which price levels the key players are buying and selling and, by implication, to know the price levels at which the 'weak hands' (as Mr. marcus would call them) are buying and selling - then this is the only true 'indicator' a trader needs to be successful in the markets, IMO. After that, it's down to discipline and sensible risk and money management. Unfortunately, the first bit is the really tricky bit and for those traders who have managed to crack this particular chestnut, life must be very sweet indeed. For those of us who haven't managed it yet - me included - there is some good news. That is that it is a goal that can be achieved. Others have done it, so it's definitely possible to achieve. We don't have to be the Roger Bannister's of the trading world and be the first to run the the 4 minute mile. Or be the first to the summit of Everest. Or reach the South Pole etc., etc.
All indicators, trend lines, moving averages, S/R levels etc. are merely tools to help enable each trader to form a view about the intentions of the key players in the market and how the weak hands are likely to respond, based on what they perceive (usually incorrectly) to be happening. Buying a break out above an area of resistance is fairly pointless and likely to result in a losing trade if there aren't enough other like minded traders with real clout who think as you do. I have always been rather amused by the indicators vs no indicators debates because, to me, they are all pretty much the same. Unless, as Charlton says, one has the ability by whatever means to "spot what is really happening in the market, behind the apparent and public face", then it doesn't much matter if your an indicator junkie or a 'dark sider' trading off price, volume and perhaps a few S/R levels and some trend lines.
The ultimate goal is to scrape away another layer in a bid to get to the heart of what's really going on. In the meantime, substantial evidence on these boards suggests that it is possible to be profitable with a fairly mechanical strategy, without the insight into what is really going on in the market - which is very good news indeed for most of us. 😉
Tim.
(Apologies to Paddy McTaff, as this doesn't help with his original post re. profit targets!)

 

[TWI]

simplify, simplify and go with the flow.
Not against it.
If you can be disciplined in your risk management and stick to the plan even during a protracted losing run then you will succeed with this mantra.

 

[hdt]

whatever you take as a profit, just make sure your lose is never greater than your profit taken

i day-trade the e-mini dow and scalp out small moves anywhere from 10 to 20 ticks while risking 6 ticks, this way no one lose will rob me of all my profits...also it's a lot easier to come back from a few loses when you trade this way.

also i like to scale out of my trade, i first pay myself and then adjust my stop to b/e and let the others run to target, if i sense the market structure is changing i will not hesitate to go flat.