Targets In Forex Trading
You might have seen articles on this very website that have talked about the untold power of letting profits run. And while I’m a huge fan of letting your trading profits run, I used to be a massive fan of targets.
That part of me hasn’t suddenly disappeared. I’ve just grown to look at trading targets differently.
Instead of looking at prices to set your targets, be aware of the R multiple (basically Risk-to-Reward ratio) you’re getting on your winning trades.
Shoot for the stars, Aim for the Sun
You want your winning trades to go to infinity! Every trader does. Chances are your trade won’t get to the sun, but there’s no shame in landing amongst the stars.
To be clear, “the stars” means an excellent R multiple trade outcome. It doesn’t matter what price you get in at if you have a rubbish RR.
I’m a day-trader, so risking 100 pips is just out of the just question! I can’t consistently expect the market to move 300, 400, 500 pips in one day. But price can move 80 – 100 pips in a day. And if I’m risking 5-10 pips, I can make returns upwards of 5R.
See why it doesn’t matter how many pips I’m catching? Please don’t get fooled by Forex traders who brag about getting 500 pips on a single trade when their stop-loss was 250 Pips from entry! That would be a 2R trade even if they did bag 500 pips.
So give your trade room to move in your direction, but if your paper profit is at 10R and that’s unusual for your strategy, start thinking about preserving those gains. I would say take your money and run, but some might ask, what if it continues and goes to 20R??
It could! Anything is possible in the market, but to leave your ENTIRE position on the table hoping it goes to 20R when you don’t usually get 10R profits is just greed. If you’re like most people, should that trade come back and close at 2R, you would be distraught.
If that’s your trading plan and you’re okay with profits eroding on such a scale, you’re a different beast, and this advice isn’t for you.
But I highly suggest you take the 10R and keep it moving. There’s no way having bagged 10R, or a high R multiple can hurt your bottom line in any way.
Now if that trade becomes a 50R trade or 100R, maybe it can hurt your bottom-line, but how often does that occur? You need to give your positions enough room to win big, but “black-swan” events shouldn’t be part of your hopes when trying to trade profitably.
Remove any hope that you’re going to have one massive trade that will put you on the map. Just… leave room for it, you get the difference?
How to leave room
Best answer I have now is to trail your stop. Trail it behind those Lower Highs and Higher Lows. If you get stopped out, no biggie! You weren’t betting the farm anyway, so onto the next trade. The markets will smile at you for being disciplined and consistent.
A great opportunity will come, manage it and secure some profit (the amount is up to you -Whether you take 50% and leave 50% on or make it 80-20, that’s is your choice). By leaving some of your position running, you’ve allowed yourself to take a ride to the sun, but if it doesn’t reach there (It probably won’t), you don’t feel the pinch as much. Simple.
Manage your trade according to your system probability to move more in your direction. For example, if you know that once price hits the ADR, it’s not likely that it continues in your favor. When the market hits the ADR, take off 80 and see what the market does with the 20 you left on.
You’ve left room to increase your profits. Similarly, I wouldn’t advise you to outright close your position (even if you are in high profits), and I don’t recommend leaving your entire position open when you are running at a substantial gain.
It takes patience, practice, and experience. The longer you keep doing this (trading the market), the easier it will become emotionally. Increase your risk in good stride but don’t bite off more than you can chew.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.