What's the point in using "targets"?

Discussion in 'Strategy Development' started by HiFreekTrader, Mar 28, 2007.

  1. I see many use "targets" as exit rules. Like sell when price rises 10 points from where I bought; or sell if price drops 2 points from where I bought.

    But the market price does not depend on where you bought! So WTF.
  2. Personally, I start using targets when I happen to get over aggressive in my plays and it hits my wallet. Then I pull back, get conservative and do targets while I build up the size of my positions.

    The war between "go for it" and play it smart. LOL.

    Targets force me to keep my head level while keeping me in the game....
  3. Hello HFT,

    With 18 postings in ET, you may be new to trading but that is not the point.

    Trading is only about making money in my opinion and the best means of achieving this to trade volume and the best way to have the fortitude to trade volume is to never have losing days.

    Now the best way to avoid losing days is to trade several times each morning in the high volume which can also mean high volatility.

    Because you are only interested in making money you will become interested in making a few points from each price wave. Sometimes the wave is against the general direction and you will trade for a tight points target and sometimes you are with the wave and your target can be greater.

    Remember, you are only interested in making money, you are not interested in maximizing your points, that is why you use targets.

    This statement only applies to ES since it is all that I am qualified to talk about and other people will hold differing opinions.

    If this is of interest to you, then I am glad.
    If it is not, then simply discard it.
  4. vikana

    vikana Moderator

    Assuming you have a plan or trading model it's ultimately a numbers game. From a statistical perspective there is proably a particular favorable move that happens 80% of the time. This would be a good place to take some profits.

    For some systems having targets is the right thing to do, for others it is not. There are no universal "always true" rules.
  5. MGJ


    One psychological reason why profit targets are appealing, is that they lock in gains. It is debilitating to watch a profitable trade turn into a loss while your trading method steadfastly refuses to signal an exit. This is painful and it is real. In an attempt to avoid the pain, some people install profit targets. Now any trade that hits the target is guaranteed not to turn into a loss. Pain has been reduced.

    Make a scatterplot of MFE (Sweeney's Maximum Favorable Excursion) on the horizontal axis, versus trade_profit_at_exit on the vertical axis. Installing a Profit Target into your trading method moves some of the points (trades) from the 4th quadrant (where they are losses) into the 1st quadrant (where they become profits). The win% increases. Many people find this psychologically desirable.

    The shape of the scatterplot, its "structure", is illuminating as well. Give it a whirl. You can see which losses get turned into profits, and you can see which big profits get turned into small profits. Much insight from a single plot.
  6. Exactly right vikana.

    Exit at that point and try to manage the other trades that were not caught in the thrust so they more or less leave your points take neutral.

    Never forget.... A good Trader is only here to make money, the points are just a means to that end.

    At first this may seem self evident, but a short time trawling through ET will convince you otherwise
  7. True--with 2 caveats-- I believe there are always true rules and I also believe that all profit should be taken in those ares, not part of it. Where a lot of newbies get into trouble is where they don't think there are always true rules.
  8. See attached.
  9. Quite. You must let your winners run (and cut your losers promptly). Setting arbitrary targets goes against this maxim and puts you back on the sidelines looking for an entry rather than making money.

    What makes you feel worse?:

    1. Exiting too soon ("Phew! I got away with it!") and seeing price subsequently run away

    2. Sitting and watching paper profits erode to zero (or worse down to your "protective" stop)

    3. Not knowing why this happened and what clues from the market you missed to take action in a timely manner

    For me it is 3. So that's what I work on every day to improve. It's working, and it is work.

    I'll probably get flamed. Who cares.
  10. Brilliant, Jack.
    #10     Mar 29, 2007