Many traders spend all their time and energy finding the best entry point to the trade, but after entering the trade, they become confused and do not know how to manage their trades. As a result, traders lose confidence, make emotional decisions, miss opportunities, and make mistakes that later lead to regrets. Knowledge of how to set goals in trading is very important, but it is often overlooked.
A trader who has a precise strategy for setting his goals can trade more confidently by eliminating speculation. Hence, in the continuation of this article, using Content Published on the TradeSite website, we will point out seven effective ways to set the right trading goals.
1: Fixed profit to loss ratio
The simplest technique for goal setting is to keep a constant profit-loss ratio.
1) Measure the distance between the entry point and the loss limit. In the example below, this distance is calculated to be 7.25 units.
2) Multiply the loss limit by 1, 2 or 3, depending on the distance from the target and the desired profit-loss ratio.
As you can see, this is a very simple way to implement a consistent goal strategy.
Having a high profit-loss ratio is not necessarily better, and the higher the ratio, the less likely you are to win.
In particular, novice traders looking to gain knowledge and experience in the market should choose a smaller target with a lower profit-loss ratio to be more likely to win and gain the confidence needed to trade faster.
2: Recent levels of support and resistance
Another target strategy, which is very popular among traders, uses the latest levels of support and resistance. Support and resistance levels are serious barriers to price movements, and it makes sense to choose your target in such a way that the price does not have to cross important support and resistance levels, as this can reduce the probability that the price will reach your target.
In general, traders often find the most important level of recent support or resistance and then set the target a few points higher or lower (depending on the position of the trade). This is an important issue. In the following example, if you are in the short position, it is best to place the target a few points above the support level to reduce the risk of the price returning from the support level.
3: Pattern reflection
The next method is to use the height of the pattern to determine the rate of price growth after the break of resistance, which some traders call Pattern projection or Measured moves.
In the chart below, we see an inverted pattern that is bullish. In this case, we first calculate the height of the pattern from the lowest point to the highest point and then, we continue the same distance from the resistance level onwards.
If you are using this goal strategy, keep in mind that you need to accurately measure the distance from the lowest point to the highest point of the pattern to get the correct distance.
Also, some traders multiply the pattern height by 0.75, 1.25, 1.5 or even 2 after calculating it. Again, the farther away your goal is, the less likely it is that the price will hit it. All in all, it is better to choose your goals more conservatively when applying any new strategy. This will help you to gain the confidence you need much faster and be more likely to win.
4: Moving average at higher timeframe
This method works especially well in Forex trading, because in this market prices often approach the average over time, regardless of the amount of fluctuations.
What is true in all parts of the image below? The price is always returning to the central moving average and is constantly trading around this moving average. In this example, we consider a 30-minute chart and a moving average of 50 cycles of a four-hour timeframe.
In the return trading approach, it is better to determine the target strategy of the moving average at higher intervals, because you can use the moving average at higher timeframes to gain more trading opportunities.
5: Fibonacci Extension Levels (Extended)
Fibonacci extension levels are used in many trading ideas. In addition, these levels can be used to determine the purpose of trades.
After breaking the resistance and identifying the ABC points, draw your Fibonacci tool from the bottom to the top of the movement associated with the resistance break. Once you find the Fibonacci level C correction, you can select one of the Fibonacci extension levels as your goal.
In general, the Fibonacci Extension levels 1.38 and 1.61 are the closest levels and are considered as targets more than other levels.
The price seldom hits levels 2 and 2.61, and a strong trend is needed to get the price to these levels.
6: Timely goals
Timely goals can be combined with other goal strategies. For example, daily traders often use the target strategy at the end of the day (trading interval) and at the end of the trading day, they move out of all their open positions to avoid the possibility of overnight losses.
Most traders who trade using weekly market fluctuations use the weekend target strategy and withdraw from all their open trades before the start of the weekend to avoid losses during the holidays and when they are not monitoring their trades. Do not.
7: Floating loss limit
Similar to a timed target, a floating loss limit is a method that can be combined with other target strategies.
In general, traders who use the floating-point approach aim to make as much profit as possible from trading. These traders choose an open-ended target strategy, meaning that they do not set a target at all and adjust their losses just by following price movements to maximize their profits in volatile markets.
Traders often use moving averages as a tool to create a floating loss limit. In the example below, you can see the 50-day moving average, in which the trader sets his floating loss limit based on the moving average. Note, however, that the target should never be set exactly on the moving average so that you do not leave the trade early if you make the usual bounce moves.
Also, there are some pros and cons to setting a floating loss limit:
- With a floating margin, you will never get the maximum possible profit in the process, because a floating margin usually takes into account the (lowest) floor prices in a volatile market.
- The floating loss limit will only maximize your profit over longer-term trends. In many cases, the trader is forced to return some of his profit in the price return process.
- By using a floating loss limit, the trading time of the trade may be significantly increased, so that many traders can not afford it. It is very difficult to stay in winning trades for a long time.
Therefore, it is better for experienced traders who do not get involved in emotions and have a solid foundation for their trading mentality, to use a floating loss strategy.
As we mentioned at the beginning, there is no better or worse target strategy, and the choice of the type of target strategy depends entirely on the trader and which target strategy works best for the trader. So, to get started, just select a few, try them one by one and see which one you can work with more easily.
Then, apply the strategy to your trades, track the results of your trades, and continue to improve the approach you have chosen.