If ever or whenever you are doing a trade the question quickly shows up : How and when do you leave without losing a cent ? Aiming targets has to be a very important part of your trading strategy , and this is the subject of the next article in our series Stock Trading Strategy.
Objectives can be time-based (I’ll keep doing the trade for 3 weeks ) or based on technically (I’ll keep making the trade until my slow moving average crosses over my faster moving average) or profit-based (I’ll quit when I make the profit of 1000usd ), or based on price (I’ll get out of the trade when it reaches my target price .)
Of the 3 methods each of them has some gains and losses. Technical exits are always available and remove this part of private opinion , however work well only in effective trends , cause deficit by congestion , and nearly always leave a lot of money upon the table . Found on time tools are helpful at times but just mostly are net losers, and so can not be seriously considered as a solo implement . Found on profit exits can teach a trader to make frequent profits but what happens when the trade continues far above your pre-decided exit point? This violates one of the basic rules of trading: run as soon as you win .
The greatest meaning of leaving is to decide aimed prices but only when these are soundly set up in the market structure and point the market’s existing support and {resistance matrix}. If your trade idea {takes into account} the natural support and opposition of the market then the aim of yours is going to be sound and your chances of taking out all that the markets gives is even more higher then with arbitrarily chosen, arranged dollar profit aims (which tend to be driven by emotion ) or a technical moving average tool (which by definition is obliged to leave much money on the table ).
How are you going to aim 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 built an understanding of multiple time period structure and the ability to project this support and resistance levels forward in the coming days, setting targets is not hard to finish. The first technique is to {use your higher time-period support} and resistance levels (this should usually be one time-period higher than your trading time-period), and to point your targets at the next logical support or resistance level beyond the current price.
Stock trading strategy as follows: If you are day-trading the S&P E-mini contract. You’re using a 5-minute chart and take a position using your best entry system. The market begins to work in your favor and because you have 5 contracts to put on a position you quickly accumulate a profit of $750 . You are glad and turn a bit greedy and that makes you want to take profits quickly , especially as you notice a slight retracement in the 5 minutes chart. But, understanding that market structure is mostly at play, you step backward for a moment and take a look at the everyday and weekly charts. On your Drummond Geometry charts you can view quickly that your entry was next to daily and weekly support , at the bottom of the daily envelope and close to the weekly envelope bottom too. You see that the logical target of this initial move is at the daily PLDot some 9 full points away, and that the improvement of the 5 minutes bar with its slight retracement is totally normal and go on with the idea that the market has {further upside}. You set a price target at the daily resistance and set an alert to sound when that is filled , so that you are able to take profits here . You can then further assess if the market will reverse and step back to the beginning assist level or pause and continue to higher level of resistance.
The point is that when researching market structure as opposed to arbitrary dollar value price aims you mostly take the control of what the market is doing. As a stock trading strategy teaches, you are take full control since you understand the structural target mostly as the market goes between its higher time- period support and resistance levels.
