Friday, May 17, 2024

How to Tell If Your Trade Will Hit Its Profit Target

Any trading activity is represented by three aspects: risk, loss, and reward. It’s not without purpose that the reward factor is named the last. In order to hit your profit target, you need to pass the first two tests that loss and risk are creating for you. Only afterwards, you can get to enjoy your rewards.

The Forex market is known to be a volatile ground, so there are just a few and shabby ways to predict the outcome of your actions. Your steps won’t meet solid ground, but they can be guided by reason, your trade history, and consistency. Let’s see how you can tell if your trade hits its profit target.

Use a fixed profit target

Many traders prefer to let the profits run as freely as they please. However, as much as big scores can be achieved through this strategy, this preference will make the risk factor go crazy with your balance. Earning control over your assets is the only way to have a pretty decent monthly income.

The adrenaline is likely to take hold of you. But feelings should have nothing to do with it when it comes to business. Every step you take must be calculated and based on the risk:reward ratio. If you are betting big on a 5:1 ratio, this ratio holds the best chance for your profit to go over the top, but you have even more chances to lose it all.

So, in the end, calculated risk will prevent you from falling from the peak and staying in a consistent and safe zone. Use a fixed profit target to conquer your way to the peak one step at a time. To do that, all you need is to pick a number of pips for your profit. If a currency changes its exchange rate and reaches your pip limit, you are out of there. There are high chances that your exit will leave a great deal of profit behind, but you will already be in the possession of some part of that big profit.

In binary trading, for example, it is simpler to calculate your risk as there are only two parts to be considered:  you can predict either “Call” or “Put”. The risk factors are, thus, cut in half, and the earned bonuses are more rewarding and easy to accomplish.

Setting a fixed profit target will make the difference between a well-managed business and just another day at the local roulette.

Find the resistance levels and stick to them

Resistance is a kind of analysis that guides the traders to their potential entry and exit points. Once a stock reaches its resistance level, this means that it actually reached its peak, and it is time for you to withdraw.

This resistance point is easily determined by connecting the highest prices of a stock in a chart and if you draw a horizontal line to comprise at least 3 such high points, you have found the resistance level.

Use this analysis to take your position near such a resistance point and you will play in the safe league.

A truly remarkable event is when a stock breaks its resistance point, and that is your signal that you should start buying or at least hold your position.

The “second chance entry” is a guaranteed measure to avoid falling for a false breakout price. The strategy is simple. Wait until the price lowers to its initial resistance level then it rises again. This is your green light for a well-calculated investment.

Set daily profit targets

Another way to play the Forex smart is to keep track of your trading activities on a daily basis. Especially if you are at the beginning of this kind of trade, you should start with small steps, learn from your history and determine your consistency level by measuring your activity’s profit and risk not just for days, but for months and even years.

Record your wins and profits and set an average number for your daily activities. This way, you will come learn what your daily risk is, how many successful trades you should score to cover the losses, and how many trades you should make per day.

From here on, it is easy to decide your monthly and annual profit target, set a reasonable and proactive number, and stick to your goals.

Activate your stop loss

A successful trade is not just finding a profitable entry, but also knowing when to exit. Many people jump on making their retreat when their loss hits a bearable level for them. But you shouldn’t do that and here is why.

Setting your stop loss at a certain percentage of your account can make your trade stop its activity right at the point of your entry. So, playing small with a 2% risk factor or aggressive with a 10% risk of your total account are the two popular, but not-so-smart strategies. They only get you a stop loss too tight, and you won’t have room to develop your strategies.

So, the best you can do to bypass the limits imposed by a percentage stop loss is prospecting the market environment and your system rules.  The Average True Range will help you overcome this pitfall. ATR is a technical indicator that is easy to read, and it takes the pulse of the market volatility. The benefit of this strategy is that traders are not guessing their stop loss anymore, but they are making logical and sound equations to calculate when they need to retreat. The more you learn about the ATR, the wider your stop loss is. This offers you room for larger profits and, at the same time, you are more sure that you will hit your profit target.

Truth be told, nobody can predict the outcome of a trade. That is why it is recommended to get involved in a safe game, where you can keep track of your activities and every measure you take should be based more on risk control and less on adrenaline, wishes of high profits and rush decisions.

Elliot Preece
Elliot Preece
Elliot is the Editor at ABCMoney. He manages a team that writes and contributes to many leading publications across a number of industries.

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