Tips for Managing your Trades: What are Profit Targets?
by Mashum Mollah Management 20 December 2018
Learning how to successfully trade to improve your financial health is easier said than done. It takes years to become a professional in stocks, futures, and Forex. Even when you end up with a fantastic strategy, there’s always going to be a time when you need to step back and exit a position that just isn’t working for you anymore. Every trader experience wins and losses in their trading strategies. The ones that deal with the experience best are those that know how to exit the trade at the best time. Before you start evaluating your trading strategy by reading the latest comments on Stocktwits, or joining trading courses, ask yourself whether you need to add profit targets to your trading campaign.
What are Profit Targets?
A profit target is a pre-chosen price point in your trading strategy that tells you when it’s the right time to close your trade. For instance, if you buy a stock when it’s trading at $9 and you have a profit target of $9.50, you would place an order with your broker to sell the stock as soon as it hits $9.50. Obviously, this means that you can’t continue to earn more if the stock gains greater profit, but it also means that you won’t allow greed to get the better of you with your trading plans too. Many people use profit targets to help them stay balanced when they don’t want their emotions to make their decisions for them on the trading floor. With a risk/reward ratio calculated on your trade, you can determine a realistic profit target for each position, and make sure that you get out of a trade before you have the chance to lose too much money.
The Pros and Cons of Profit Targets:
When it comes to trading with profit targets, there are positives and negatives to this strategy. By placing a profit target and a stop loss on your trading strategy, you know exactly how much you can stand to make or lose before you even place the trade. Most experts base their profit targets on objective data, which means that the whole trading experience starts to feel less like a gamble and more like a careful investment.
If you consistently reach your profit targets, you’ll also know that your strategy in the trading environment is working, which means that you can rest assured that you’re going to continue making money. Of course, placing profit targets requires careful skill and focus. It may take time before you can estimate the correct profit targets for your trades accurately. Additionally, there’s always the chance that you won’t reach your profit targets, which is why stop loss orders are so important in this trading strategy. You also need to make sure that you get out of a trade before you lose too much money.
Day traders should always have a good idea of when they want to get into or get out of a trade. Working with profit targets and stop loss strategies can help to ensure that you don’t waste too much time on an investment that isn’t going to pay out for you in the long-term.