Monday, February 4, 2013

Small and large targets

Many traders enter a trade with no idea of targets. They enter purely on the setup strength and lots of hope. One of the consequences of setup strength trading is that you need to take a fixed target or scalp exit most of the time.

My trading style has evolved over time from pure setup strength to keeping track of potential targets as the price action unfolds. This ensures that unless I have a decent target in view, I sometimes do not take trades even on good looking setups.

Some large targets are obvious. For example, a strong breakout beyond a trading range is likely to fill a target thats a measured move of the size of the trading range itself. A weak breakout on the other hand is likely to test the other end of the trading range. This means that a breakout attempt out of a trading range is likely to give a reasonably accurate large target.

Smaller targets are simpler to estimate. In a trend move, a deep pullback is likely to take out at least the prior swing. So if the pullback is greater than your stop size, its usually an ok setup to take.

Some targets are indefinitely large. For example, the first pullback on an early trend start may continue indefinitely into the end of the day or at least until the trend is exhausted or otherwise terminated.

For example, today if you took b2 long, your target is the other end of b1 (a large bar is a TR). If you sold anywhere above b1 your target would be the low of b1 filled at b41. A deep pullback to b62 would give a target of the prior swing point b41 low.

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