Hey, wizards!
Happy 2022 and welcome on the first Educational Post by Investroy for the new year. Today we are gonna be talking about different ways of setting a Target Profit (TP), and scrutinizing the benefits and drawbacks of each. Though there are many ways to set targets, as it varies depending on ones trading plan and strategy, here are 3 of the most popular ways of placing a TP.
1)Confluence based
Reading the chart and analyzing different timeframes of a certain security, we can use different confluences to spot potential zones of price reversals. On the graphical illustration demonstrated on the chart, we can observe that a rectangular range has been formed and the price is sitting at the lower boundary, in other words at the crucial zone of support. It is highly likely that traders will start going long on this setup and anticipate for the price to keep rising and reach the area of resistance. On the other hand, it is never 100% sure that the price will be able to bounce off the local zone of demand, and therefore risk management should be strictly followed.
2)Risk-to-Reward based (Fixed)
The other name of this method is “set and forget”. One group of traders prefers to follow same risk-to-reward ratios for all positions opened (For ex. 1:2 or 1:3 fixed). Another group favors setting different RR ratios for different trades and let the positions run until they hit TP. All in all, the technique implies setting a certain RR Target Profit and letting trades run. On the figure displayed on the screen, it can be inferred that the sentiment of the market is clearly bullish and the price is expected to keep rising. One of the disadvantages would be the following: sometimes due to greed, traders set their targets too high and the price results in not reaching the intended TP.
3)Intuition/Logic based
As strange as it may sound, there is actually a number of traders implementing this approach when setting a Target Profit. Moreover, it requires experience to sense where the market is about to move. As illustrated and interpreted on the graph, the market repeats historical actions from time to time. Experienced investors tend to notice some specific patterns and make decisions out of it.
Happy 2022 and welcome on the first Educational Post by Investroy for the new year. Today we are gonna be talking about different ways of setting a Target Profit (TP), and scrutinizing the benefits and drawbacks of each. Though there are many ways to set targets, as it varies depending on ones trading plan and strategy, here are 3 of the most popular ways of placing a TP.
1)Confluence based
Reading the chart and analyzing different timeframes of a certain security, we can use different confluences to spot potential zones of price reversals. On the graphical illustration demonstrated on the chart, we can observe that a rectangular range has been formed and the price is sitting at the lower boundary, in other words at the crucial zone of support. It is highly likely that traders will start going long on this setup and anticipate for the price to keep rising and reach the area of resistance. On the other hand, it is never 100% sure that the price will be able to bounce off the local zone of demand, and therefore risk management should be strictly followed.
2)Risk-to-Reward based (Fixed)
The other name of this method is “set and forget”. One group of traders prefers to follow same risk-to-reward ratios for all positions opened (For ex. 1:2 or 1:3 fixed). Another group favors setting different RR ratios for different trades and let the positions run until they hit TP. All in all, the technique implies setting a certain RR Target Profit and letting trades run. On the figure displayed on the screen, it can be inferred that the sentiment of the market is clearly bullish and the price is expected to keep rising. One of the disadvantages would be the following: sometimes due to greed, traders set their targets too high and the price results in not reaching the intended TP.
3)Intuition/Logic based
As strange as it may sound, there is actually a number of traders implementing this approach when setting a Target Profit. Moreover, it requires experience to sense where the market is about to move. As illustrated and interpreted on the graph, the market repeats historical actions from time to time. Experienced investors tend to notice some specific patterns and make decisions out of it.