Set Targets -- One Of The Most Important Thing Of Trading With A Stock Trading Strategy As soon as you are in a trade the question quickly comes out : How and when do you leave with a profit? Aiming targets has to be one of the most important parts of your trading strategy , and this is the subject of the next article in our series Stock Trading Strategy. Objectives can be found on time (I'll keep doing the trade for 3-week) or based on technically (I'll stay in the trade until my slow moving average passes over my faster moving average) or found on profit (I'll leave when I make the open profit of $1000 ), or price-based (I'll leave of the trade when it reaches a certain price .) Of the three ways each one has some advantages and liabilities . Technical exits are mostly available and delete the element of private judgment , however work well only in the strong trends of the stock market , cause losses in the crowd, and nearly all the time leave a lot of money on the table . Time-based tools are effective at times but just as often are net losers , and so shouldn't be seriously taken as a solo implement . Based on profit exits are able to train a trader to make frequent profits but what happens when the trade continues far beyond your pre-planned exit point ? This violates the easiest rule of trading: let your winners run . The greatest meaning of quitting is to decide price targets but only when these are good based in the market structure and reflect the market's existing support and {resistance matrix}. If your trade plan {takes into account} the natural support and resistance of the market then your aim will be sound and your opportunities of taking out all that the markets gives is much more higher then with arbitrarily chosen, arranged dollar profit targets (which attend to be emotionally driven ) or a technical moving average tool (which by definition is compelled to leave much money on the desk ). How do you set profit targets according to market structure instead of an arbitrary dollar objectives? For some of us this is not an easy question however for the trader who has created the understanding of multiple time period structure and the ability to project current support and resistance levels forward in the coming days, setting targets is not hard to do . The basic technique is to {use your higher time-period support} and resistance levels ( it should normally be one time-period higher than your trading timeperiod), and to aim your targets at the next logical support or resistance level upon the current price. Stock trading strategy as follows: If you are day-trading the S&P E-mini contract. You're using a five minutes chart and take a position using your favorite entry system . The market starts to work in your favor and since you have put on a position with five contracts you quickly accumulate a profit of 750usd. You feel glad and turn a bit greedy and that makes you want to take profits fast , especially as you see a slight retracement in the five minutes chart. But, knowing that market structure is mostly at play, you walk
back for a period and take a look at the daily and weekly charts. On your Drummond Geometry charts you can view quickly that your entry was next to daily and weekly support , at the last of the daily envelope and close to the weekly envelope bottom as well . You can see that the logical target of this initial move is at the daily PLDot some 9 full points away, and that the development of the 5 minutes bar with its slight retracement is entirely common and go on with the idea that the market has {further upside}. You made a price target at the daily resistance and make an alert to sound when it is full filled , so that you are able to take profits here . You can then further assess if the market will reverse and move backward to the original assist level or stop and continue to higher level of resistance. One of the main points is that when staring at market structure as opposed to arbitrary dollar value price aims you always take the control of what the market is doing. As a stock trading strategy teaches, you are in full control since you are aware of the structural objective all the time as the market flows between its higher time- period support and resistance levels. Ted Hearne is a Forex and bond trader who has written extensively about trading and has co-authored a "stock trading strategy" called "Drummond Geometry". His biography and further information about his work can be found at the stock trading strategy website.