Where to Place Your Profit Target
In this video:
00:24 – Trading from Nelson, NZ
00:48 – We talk about stop losses but what about profit targets?
01:30 – What you should not do
02:10 – How do you know where to place your profit target?
04:14 – Trading the longer time frame charts
06:07 – Contact me for more details about how we can help you
Do you know where you should be placing your profit target and why you should be placing your profit target at that level? Let's talk about that and more right now.
Hey, traders. It's Andrew Mitchem here from The Forex Trading Coach with video and podcast number 339.
Trading from Nelson, NZ
Coming to you from Nelson in the South Island where we're just setting up here. I've got a webinar tonight for clients, and just setting up in a new property that we're moving into, and not quite there yet. We'll be here properly in a couple of months from now, but just getting things set up in the office here. Hence the change in the background and just the two screens, not four.
We talk about stop losses but what about profit targets?
So yeah, we want to talk about profit targets. We talk a lot about stop losses. And stop losses, of course, are very important, because without a stop loss you're not protecting your trade, and without knowing where you're putting your stop loss, you don't know the position size you need, the lot size you need to keep your risk equal.
But also another very difficult part of trading is where to put your profit target and why, and how do you decide where to put your profit target? What determines that? Does it determine by the currency pair, the timeframe, the conditions at the time? What is it that you do to determine that? And you can't just sort of make it up on the go. You've got to have a bit of a plan about this.
What you should not do
And also, we talk a lot about high reward to risk trades, and it's very important that you don't just go, “I've got a 20 pip stop loss, so I need to put a 40 pip or a 60 pip profit target,” simply because you hear me talk about you need a two or three to one reward to risk trade. It's important that you don't do that.
Yes, you need high reward to risk out of your trade, but you need to also put your profit target at a level that's a sensible level for a reason for that trade at that time. And that might be different depending on the currency pair or the timeframe, market conditions, et cetera. So how do you know?
How do you know where to place your profit target?
So it's really important that we get this right, because, of course, it can make or break your trading performance. And the whole point of a profit target is is when the price gets there, the market closes you for a profit and you haven't got to be at your computer worrying about the trade being open and those type of things. So it's important that we do that.
So, how do we approach that? Well, because we're technical traders, we're always looking at price action and we're looking at charts. It'd be very difficult as a news trader, I would imagine, to know exactly where to put your profit target, because it depends on the reaction of that news, things like that. Whereas technical traders, we've got a lot of things that's actually in our favour. We can see, let's say you're taking a buy trade, of where the price last bounced. For example, where's the next likely resistance level?
But the approach that we take at The Forex Trading Coach is two-fold. So if we're trading, and we split our trading up. If we're trading one-hour charts and shorter, which, to be honest, personally I don't do a lot of, but if we were, we're looking at current market momentum, we're looking at what's happening in the market right now, because on an hour chart or a 15-minute chart, you don't want to be worrying about retracements and things like that. You want to get in at the market because you're trying to ride the current momentum at the time.
So it's very important with the market order that your profit target is placed at, let's say, by trade, before a previous swing high or below the next round number. You don't want to be sort of trying to have your profit target through the pivot point, let's say, as an example. Things like that.
So you always want to bring your profit target for a buy trade on a hour chart or lower below the next likely stalling point, the next resistance level. Really important that you can do that. And, of course, we teach how to do that. On my webinar that I'm holding tonight, I'm sure there'll be some trades I'll be taking on hour charts or 15-minute charts, and we'll be doing just that.
Likewise, of course, for a sell trade, make sure your profit target is before or above the last support level and/or round number. So that's how we trade the shorter timeframes.
Trading the longer time frame charts
But when we're trading the longer timeframe charts, so four-hour charts, daily charts, six hours, 12 hours, dailies, weeklies, monthlies, et cetera, longer timeframe charts, we're using the momentum in the market at the time to help determine that. So we use FIB levels.
I have a way of using FIBs that's quite different to the standard way of using FIBs. It's very easy to use, very easy to understand, very easy to draw the FIBs, and also they give you your price projection. They are determined by the current market conditions.
As an example, if I'm taking a trade on the British pound U.S. dollar daily chart, my profit target on the trade that I might have taken last week may be very, very different in terms of the size of that profit target to where the profit target might be on a trade today. Same pair, same timeframe, but due to the actual size of the setup candle, the current market conditions, it might be very different in terms of the pip size of the profit target.
But of course, that's very easy to use and understand and know exactly where those targets are when you use the FIBs the way that I have developed and teach. And because there's no subjective, “Oh, I might move it there or I might put it there,” it's very obvious this is where we put it.
It's also remarkably accurate of how often the price gets to those levels, because our profit target coincides with support and resistance levels, and again, it's all something that we cover and teach as part of the course.
But it's amazing how often on all timeframe charts, whether it be a four-hour chart or a monthly chart, how often those profit targets get hit and then the price might turn around and retrace. But for us it doesn't matter, because we've already taken the profit out of that trade and hit full profit. So, various ways of doing it, depending on the timeframe chart that you are trading.
Contact me for more details about how we can help you
If you'd like to know more, feel free to email me: [email protected] Have a look at the website, have a look at what we offer within the course. There's so much information there. Like I said, live two-hour webinar I'm holding tonight for clients. We'll have clients on there from all round the world, hundreds of clients on there, all learning together, all enjoying the same system, the same strategy. Different timeframe charts we'll be trading, depending on what the market conditions show.
And these are weekly webinars, weekly, every two weeks. Sorry, every two weeks it's with myself in the European session, and then the alternate week Paul Tillman, who works for me over in the U.S. trading the U.S. session. So lots and lots of information.
We're posting daily trade information on our membership site each day, we're posting information on our forum site all the time round the clock, so lots of very, very good information to help you becoming a successful trader.
So once again this is Andrew Mitchem from The Forex Trading Coach. I'll see you this time next week. Bye for now.