| Once you are in a trade the question quickly rears its | | | | support and resistance levels forward into the future, |
| head: How and when do you get out of the trade at | | | | setting targets is easily done. The basic technique is |
| a profit? Setting targets has to be one of the most | | | | to use your higher time-period support and resistance |
| important elements of your trading strategy, and this | | | | levels (this should usually be one time-period higher |
| is the subject of the next article in our series | | | | than your trading time-period), and to set your target |
| Technical Analysis Explained. | | | | at the next logical support or resistance level beyond |
| Targets can be time-based ("I'll stay in the trade for | | | | the current price. |
| three weeks") or technically-based ("I'll stay in the | | | | Technical analysis explained this as follows: Suppose |
| trade until my slow moving average crosses over my | | | | you are day-trading the S&P E-mini contract. You are |
| faster moving average") or profit-based ("I'll get out | | | | using a five-minute chart and take a position using |
| when I have an open profit of $1000"), or | | | | your favorite entry tool. The market starts to move |
| price-based ("I'll get out of the trade when it reaches | | | | in your favor and because you have put on a |
| a certain price.") | | | | position with five contracts you quickly accumulate a |
| Of the three methods each has some advantages | | | | profit of $750. You are pleased and feel a bit greedy |
| and liabilities. Technical exits are always available and | | | | and that makes you want to grab profits quickly, |
| remove the element of personal judgment, but work | | | | especially as you see a slight retracement in the five |
| well only in strong trends, cause losses in | | | | minute chart. But, knowing that market structure is |
| congestions, and almost always leave a lot of money | | | | always at play, you step back for a moment and |
| on the table. Time-based tools are helpful at times | | | | take a look at the daily and weekly charts. On your |
| but just as often are net losers, and so shouldn't be | | | | charts you can quickly see that your entry was close |
| seriously considered as a solo tool. Profit-based exits | | | | to daily and weekly support, at the bottom of the |
| can train a trader to take frequent profits but what | | | | daily envelope and close to the weekly envelope |
| happens when the trade continues far beyond your | | | | bottom as well. You see that the logical target of this |
| pre-determined exit point? This violates one of the | | | | initial move is at the daily PLDot some nine full points |
| basic rules of trading: let your winners run. | | | | away, and that the development of the five minute |
| The best means of exiting is to set price targets but | | | | bar with its slight retracement is entirely normal and |
| only when these are soundly based in the market | | | | consistent with the idea that the market has further |
| structure and reflect the market's existing support | | | | upside. You set a price objective at the daily |
| and resistance matrix. If your trade plan takes into | | | | resistance and make an alert to sound when that is |
| account the natural support and resistance of the | | | | filled, so that you can take profits there. You can |
| market then your target will be sound and your | | | | then further assess if the market will reverse and |
| chances of taking out all that the market offers is | | | | move back to the original support level or pause and |
| far higher then with arbitrarily chosen, fixed-dollar | | | | continue to higher level of resistance. |
| profit targets (which tend to be emotionally driven) | | | | The point is that when watching market structure as |
| or a technical moving average tool (which by | | | | opposed to arbitrary dollar value price targets you |
| definition is compelled to leave a lot of money on the | | | | always have a handle on what the market is doing. |
| table). | | | | As a technical analysis explained course teaches, you |
| How do you set profit targets according to market | | | | are in full control because you are aware of the |
| structure instead of an arbitrary dollar objectives? For | | | | structural goal at all times as the market moves |
| some this is a difficult question but for the trader | | | | between its higher time- period support and |
| who has developed an understanding of multiple time | | | | resistance levels. |
| period structure and the ability to project current | | | | |