Targets
In the last article we learned to place SL in this article will learn about Targets.
Table of Contents
Targets
- At this point, price is in a setup area & we have identified a potential stop location, a point to which price should NOT go.
- We now aim to identify targets, should price trigger an entry.
- Note that we do not wait for an entry, and then just simply target a reward 2 times our risk.
- Many people recommend simply placing a target such that it achieves a 1:2 risk:reward ratio, or even a 1:3 risk:reward ratio, and then simply walking away until price hits one or the other.
- Absolute rubbish, in my opinion!
- This amateur technique affords no consideration for where orderflow is expected to oppose future price action (ie. areas of support or resistance providing barriers to price movement).
- And it fails to consider the fact that the market sentiment is constantly changing, and the premise they used for entry may not persist long beyond their entry.
- With our better understanding of the nature of markets and price movement, we will identify potential price targets based upon these areas of S/R.
Multiple Part Positions
- Always prefer to trade in two part positions.
- Part 1 will always operate with a price target, T1.
- Part 2 will have a tentative target, T2.
- However this part of the position may be allowed to run beyond T2,
- if price action shows the potential for a trending move.
- We will discuss more on this when we talk about trade management.
- For now, let’s just identify two targets, T1 & T2.
Identifying Price Targets
PB Stop Placement
- The above chart shows the same example from our previous article of SL Placement and lets discuss targets for this trade.
- Our ultimate aim is to trade the swings on the trading timeframe chart, so we use it for defining our targets. Once again though, the lower timeframe may be used for fine-tuning if necessary.
- The first price target T1 will be the next level which is expected to provide opposing orderflow.
- The second target T2 will be just prior to the next level of higher timeframe S/R. If price is at all-time highs or lows (or at least long time highs or lows), and so offers no real “next level” of S/R, I will target the first area of trading timeframe price stall beyond T1, or allow the price to simply trend with a trailing stop (an example follows shortly).
PB Targets
- Let’s look back at some of our setup charts in order to identify appropriate targets.
- Again though, remember that we don’t simply set our stops and targets and then walk away. These are just initial areas we expect price to reach, based on our expectations for future price action. We’ll be actively managing the trade and may take profits earlier if our expectations change and our premise is no longer believed valid.
- In figure above we show a PB setup, with T1 identified at 531, just short of potential swing high resistance, and T2 identified at 534.50, just below the next resistance level. This is clearly (with the benefit of hindsight) one example which would have benefited from running part 2 rather than targeting T2.
- Next is T3 Swing Low at 539.40 which will be next opposing order-flow i.e. resistance.
As you’ve seen, assigning targets is a simple process.
- T1 is the next trading timeframe (2 min) area expected to provide opposing order-flow (swing H/L, S/R level).
- T2 is the area of higher timeframe (15 min) S/R beyond T1, although much more flexibility is afforded with T2 and you can adjust it closer if you wish, or trail beyond it for (hopefully) greater profits.
- Same with T3.
Will discuss how this trade goes after we learn about Entry in next article.