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Using profits targets in trading, irrespective of trading vehicle chosen (e.g. Forex, Index/commodity CFDs, Share CFDs), is commonly discussed as potential exit strategy.
The reality however is that these are often executed with a lack of consistency with ambiguity in trading plan statements.
This article revisits profit targets and outlines some key issues to consider in your trading plan.
The terms “take profit” (or T/P on your trading platform) and “profit target” are interchangeable.
What do we mean a profit target?
Like a stop loss, (though obviously related to taken a profit rather than a loss), a profit target is a pre-set price point (decided on entry) at which you have chosen to exit.
The main two considerations as a trader are:
When do I use a profit target?
Essentially there are three choices namely never, always or intermittently.
These invariably tend to match three distinct trading styles of the individual trader.
Those who NEVER use a profit target tend to be shorter term traders (less than 30 mins time-frame) who are “in the market” for a set period of time during the day and will close all positions at the end of their ring-fenced time. Ideally there with associated use of a trail stop system.
Those who ALWAYS use a profit target go across multiple time-frames, still using an initial and trail stop but often either use:
Those who PARTIALLY use a profit are commonly those who will trade without one whilst watching the market but when they move away will put one in place e.g. when holding a position overnight.
So, your first choice is simple, which of these three is a ‘fit’ for you.
Where do I place it?
We have spoken previously about the need to be specific in your plan to facilitate consistency and measurement.
As with any other component part of your trading plan, your profit target is no different. Here are some suggestions:
And finally…
Bear in mind of course that:
Your mission from here is to decide whether and how you are going to use profit targets and subsequent to write placement details in your plan…and then of course follow through with the discipline to trade it.
Mike Smith
Educator and course facilitator
GO Markets
Disclaimer
The article from GO Markets analysts is based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.
The information provided is of general nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information provided, you should consider whether the information is suitable for you and your personal circumstances and if necessary, seek appropriate professional advice. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Past performance is not an indication of future performance. Go Markets Pty Ltd, ABN 85 081 864 039, AFSL 254963 is a CFD issuer, and trading carries significant risks and is not suitable for everyone. You do not own or have any interest in the rights to the underlying assets. You should consider the appropriateness by reviewing our TMD, FSG, PDS and other CFD legal documents to ensure you understand the risks before you invest in CFDs. These documents are available here.
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