How do you choose your profit target?

[ivanchich]

Dear all,

I'm in the process of creating my own trading system and now I'm trying to define what kind of profit target I should use. Sometimes the trading patterns helps me to difine this, but in case there is no pattern....

Do any of you have an idea how I should do this? Share your ideas and practice with me.

Many thanks for all,

[shadow]

Eh Hope all is good! Usually what I do is let it ride for all can get, of course I am a position trader. I do, however have a clear idea of what my profit target is based on how much I risk. So, depending on your system's winning percentage, and how much you risk you want the profit you take to be greater than both these. For instance say your system wins 50% of the time and you set a fixed stop for 30 pips, you want your profit to be over 30 pips (ususlly they say 45 pips in this situation). The more pips your profit is, the less the winning percentage. That is if you have small stops, but the larger the stops, the more you tend to lose your capital, unless of course you have a large stake. And conversely the smaller the profit the greater the winning percentage, however as long as the percentage and the size of the win together is greater than the loss, your in the clear. People usually use this formula:
Loss = (losing %) x size of the loss < (winning %) x the size of the win

If this holds then you should be good. What I do, and this is just me, is I define my risk as larger than it really is, that way I make sure I am in the clear even when I get in a losing period. This also helps me stay disciplined.

Hope this helps you out, just one opinion!
Stay Cool, Take it easy!

[topgun]

I like to either wait for a 5/10 EMA cross or a reversal candlestick pattern to show up at the top or bottom of a trend, preferably at major resistance or support (Engulphing patterns, morning/evening stars, hammers or shooting stars, etc.). I have been trying to find one consistant way but I don't think that's posible because what works on one trade might not work on anoter.

Topgun

[rhodytrader]

It really depends what kind of trading approach you are taking.

For example, if you are a trend trader, you probably would never want to set a specific target. The idea of that kind of trading is to take as much as the market will give you by riding the trend for all it's worth. You wouldn't want to jump off prematurely because that would probably severely damage your performance.

If you aren't trend trading, you should take a hard look at the kind of moves that take place after the set-up you are using occurs. Go with the odds. They will always serve you best in the long run.

[ivanchich]

Thanks a lot for the ansewrs, they really help me to get closer to deside my strategy.
As I'm working and only have time in the late afternoon I chose 4 hour and daily charts for analysis. Do you use Fibonacci retracements or pivot points to find out your targets? Or simetimes there is a possibility to use Fibo extensions by usual trading patterns. For example I have got the info from a course that by a double top trend changing pattern we could have more targets depending on the momentum (FIBO 161,8% / 200% / so on...and 100% is normally the hight of the higher top). Do you know anything about this?

Topgun,

Are you trading on less than 1 hour charts? I also had the same thoughts like you, my only problem was that I'm not sure about the period of the slow and fast EMA to watch for in 4 hours or daily charts. Now I have EMA 10 and EMA 20. These help me to identify new trends. I have backtested and they seem to work. Is these crossovers that you use for exiting and entering?

Rhodytrader,

I thought I need to have a feeling about the future move the pair based on the economic reports and various news that affects them. Normally we should have profit target that you think the price will reach. Anyway when you enter the trade do you really just follow the happenings and exit when you see the trend turning?

Thx