I did a basic search on profit targets, and it didn't come up with much, so I would like to start a discussion to get some ideas flowing, and gain a better perspective of the process.
I know that there is a million ways to trade, so there must be just as many ideas about when and where to take profits, but I am revamping my trading plan, with basically an updated perspective of what I have learned here on futures.io (formerly BMT), and hoping to get the creative juices flowing through this thread.
Originally I had static targets based on the typical MFE of my core strategy. I would also trail that stop through general price action of LH's, HL's, and a close through a particular moving average would end the trade. While I plan on keeping the latter two, the static target was only good for very specific market behavior. Generally a trending environment with a large ATR, which as we all know only happens a small percentage of the time.
So I figured I needed a dynamic target that fluctuated with the markets volatility. So first I started looking at IB level extensions, and those seem pretty good, but there are definitely some limitations there as well. It seems as though they are good for runaway markets, but that's about it. If you have a very wide IB, but still get some good volatile oscillations, the IB extensions will do nothing for you. Also for example, if you are consolidating at the lower IB level, and the market heads higher(maybe breaks out from there and is a runner) surely you are going to want to take profits before the first higher IB extension. I guess you could do target one at 50% IB, 2nd at higher IB, and third at the extension. Didn't think of that, and that would fit my criteria. But another downside could be that a nice trending day with a narrow IB would also have smaller targets. Anyone who uses them, please feel free to correct/add to the discussion.
The other idea I am leaning towards is pivot level targets. Pivot points adjust to the previous days volatility, so this way you only have one day lagging information, but I feel this could be ok as the market seems to gradually shift phases from high vol to low vol. When the markets are moving, the targets are larger than my original static target which I like, but when the markets are contracting, my targets will adjust to a more reasonable(and hopefully achievable) level. There will be a certain level of discretion involved, as not all trades happen right at pivot levels. But the general idea is to target one full pivot level, whether pivot point to R1, or mid-line to mid-line. The pivot level you measure from is the one you are closest to, but inside of. So you will never actually get the full spread of the pivots, but from what I have observed you will still end up with a nice profit. The market also seems to move from one pivot level to another fairly consistently on a day to day basis, so I am thinking it will help draw the trade to target like a magnet. And I feel like targeting one pivot level per trade, while trailing it through price action is conservative, but reasonable. And will automatically adjust with volatility.
This is for my breakout strategy, I am also looking for ideas on a reversion the mean strategy. I like the idea of a targeted VWAP, with a rejection of the IB levels, but have done little back testing to substantiate that it's a profitable strategy. So any profit targeting strategies on range bound days/balance areas, are definitely welcome to the discussion as well.
I found a general 1:2/1:3 strategy very limiting, as my risk stays about the same regardless of volatility, and my win factor is around 30%. I don't mind being in a winning trade for a long time, and large targets have no affect on my psych.