This question gets floated around alot. Systems and methods provide an entry and many of the best also provide multiple exits – but once you enter the market which profit target should you take.? Pt1, Pt2, Pt3 or the ever elusive home run Pt4? Even if the profit targets are dynamic and based on an ATR (average true range) or a multiple of it or some other non-static methodology, does that mean any of them can be hit or what are the odds that you are better off holding for a larger target instead of peeling some off early?
These hard questions have easy answers believe it or not! I liken it to a footbal game. It doesn’t matter how much you want to score a touchdown every time you pass or run the ball – it’s just not going to happen every time is it? Of course not! Who would argue with this fact? It doesn’t matter what the coach wants or the quarterback wants or the running back wants or the crowd wants – the reality is if there is nobody between you and the endzone you are going to score; but if something is in your way —— like this guy—–>
The markets are no different. If you expect to get the largest profit target on every trade and that’s all you shoot for you are going to eat some losses. But if you come up with a method to examine the market context and can define clearly that there is something in the way of your long trade (linebacker selling) or something in the way of your short trade (linebacker buying) then you can set reasonable and extremely dynamic profit targets. Let’s face it, buying where large blocks of trades were sold before is like running into a brick wall and the reverse is also true. Why would we want to be a buyer when everyone else is selling? Why would we want to be a seller when everyone else is buying? If we make a habit of doing those two things then instead of a 20 yard (tick) gain we suffer a sack (30 tick loss).
I have strict rules in my trading – 1. Clearly define all buy zones. 2. Clearly define all sell zones. 3. Don’t sell into a buy zone. 4. Don’t buy into a sell zone. These 4 rules alone account for not 10%, not 30% — they account for 100% of my profits each and every day I trade the markets. Today, I did not obey my rules. Rule 1 – check. Rule 2 – check. Rule 3 – oops. Rule 4 – oops. The result – I was up 123 ticks and finished the day down 59 ticks. Dreaming about big profits and extended targets is all well and good, but when you ignore what the market is telling you and decide your 2 measley contracts (or 10 it doesn’t matter) can sway reality – YOU WILL LOSE – as I did today. (sniffle sniffle)
The bright side is we take a look at why we lost and what we can do about it and we make changes. We add some more rules to our trading or we obey the rules we have that we foolishly ignored. Today, I suffered a setback. Tomorrow….ah tomorrow, I go for the endzone again! But, only if nothing is in my way. lol
Watch this documentary video of blind faith in the target prints :