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What is the best way to work out your profit target?
Unfortunately, those are rules I cannot write down because you have to develop a sixth sense for price action (and there are some great posts regarding price action on Mike's web site). Personally, I think it takes a long time to develop that sixth sense.
In the mean time develop your own rules that keep you comfortable. You might exit at a five tick profit and be happy with a winning trade. Then don't get frustrated to watch the market run another 30 ticks your way. You made the right decision and you followed your rules. In other words, you traded on your own terms.
But I also think it's important to become more flexible over time. Imagine dating 5 different women in 5 days. Each date would be different and as long as each date was a pleasant experience for all it was a great success. Now imagine it's a month later and you have 5 more dates lined up. But this time you've set the goal to kiss each one sometime before the night is over. If one of the 5 doesn't let you kiss her has your whole week been ruined? If it has it's only because you set that arbitrary goal in your mind before going on the dates.
So trading is kind of like going on a date. Make each experience as pleasant as possible. And she'll give you the signal if it's OK to kiss her.
Unfortunately, those rules can only be written by you. It is possible to look at someone else's rules and modify them to your own, but the only way you will feel comfortable is if you use your own rules, however you come by them.
My rule number 1 is: "I would rather be out of a trade wishing I were in, than in wishing I were out."
I use a method similar to what Big Mike described, except that I scale out until there is only one contract left. That last contract is the ONLY one on which I will ATTEMPT to let profits run, trailing a 50% stop. In other words, I am willing to let go as much as 50% of the profit of the last contract. If the market keeps going really hard in my direction, I can always add another trade, still scaling out until only one contract is left. Does that mean that I leave some on the table? Sure. Refer again to rule #1.
If you want a specific rule of when I exit the last contract, (using a long position as an example), I exit when a candle closes below the low of the last candle. Not dip below, close below. As soon as it dips below the last candle, I move my stop to 4 ticks below the current low and wait. If the candle ends up closing above the low of the last candle, my stop stays right there if it is less than 50% profit, or is moved in to 50% profit. My stop is NEVER moved back. Again refer to rule #1. If the candle closes below the last candle low, I am OUT with a MARKET order. When I want out, I want out NOW, never mind leaving one tick on the table.
The 50% stop is just a disaster stop. In other words, a stop in place, just in case something catastrophic happens so quickly that I cannot move the stop in.
Naturally, the exit trigger in a short position will be the high of the last candle.
I enter the market on limit orders at the ask, scale-out targets are limit orders, stops are ALWAYS "stop market". Again refer to rule #1. When I want out, I want it NOW.
I hate to be the bearer of bad news but until you have proper rules and a framework to operate within your outcomes are unlikely to change. Sure traders develop a sixth sense but without initial discipline you'll be long gone before it develops. Without a plan how are you going to judge if you are being consistent? (Or is consistency not important to you?) Dunnigan's work might interest you he did a great job of quantifying price action. Or even good old Joe Ross or any of the threads here you mention, Gann did some great stuff on PA too. Any of them should give you an idea how to quantify price action so you can use it consistently in your own trading.
Yes of course. What I wanted to highlight was whether hondo had written down his own rules or whether he even could. Actually it was clear to me from his first post in this thread why he was having difficulty. By asking him these questions I hoped to gently nudge towards what the problem is. This time I have been less oblique
All good points. And general advice, and while I might have not read this in the previous posts... Before you enter, your assessment of the market conditions of the contract you are planning to trade should give you an idea if you're going for a handful of tick or a handful of points. If you're giving it back, you might be looking for points instead of ticks as a result of the current conditions in the market.
