1 One of the prime questions I hear is, “What is your target on this trade.”
I have to say I have none. Because I don’t.
That is followed up with, “Well, if you don’t have a target, why are you in the trade?” I consider that an amusing question, it’s so off-kilter from common sense that I usually start laughing when I hear it.
I don’t like to come off as a smart-ass – OK, well maybe sometimes – but the absolutely honest answer to that is, “I am in the trade to make as much money as I can from it.”
Targets are completely unnecessary and counterproductive. In fact, just thinking of a trade in terms of a target puts you in the wrong mindset from the moment you consider entering the trade. It creates an underlying feeling that you have failed if you haven’t reached it, or succeeded just because you did. In either case, your feeling would be completely unwarranted and could easily cost you money.
I both day and swing trade. More often than not, I swing. A day trade can turn into a swing under ideal circumstances, though it rarely does. Day trades, in fact, can be exploratory trades for later swings. But that’s another topic for another day.
I day trade because I see a temporary opportunity such as an oversold condition on one of the shorter charts. I swing when I see a trend on one of the longer charts. Targets don’t enter into either.
If I’m day trading – meaning the trade begins and ends that same day – and I get a good, quick scalp, I’m out. If I’m wrong on direction and the security starts heading the wrong way, I’m out. Either way, I’m never in a day trade for a very long time. That has nothing to do with a “target.” My only target is to make a good profit with as little risk as I can manage. I take as much as the market will give me, no more and no less. I prefer to keep things fluid and simple.
Swings are designed to last more than one day. That basically is the only limitation or target I put on it. Sometimes I don’t even achieve that. If I enter a swing and the security moves the wrong way immediately, I’m out. I can always get back in. Admitting my error quickly saves me time and money. Making or missing a “target” has nothing to do with it.
For both swings and day trades, I consult both the short and long charts. A day trade is based on a 1, 3, 5, 10 or 15 minute chart, but I consult the longer 30-minute, hour and day charts to make sure I’m trading with the larger trend. It’s just safer that way. Swings, on the other hand, are based on the hourly and daily charts, but I prep with the shorter charts to find a good entry spot.
Once I’m in either trade, my only goal is to make as much money as I can from it in a reasonable time. If I enter a day trade and get an immediate fifty cents, I’ll take it and move on and be quite pleased with it and maybe even boast about it on twitter like everyone else. I’m not going to to stand and fight because my original target was seventy five cents. That’s just money management. So, if I do that, what is the point of having a target? It will just distract me.
“I better not sell here despite the sell-off due to that Guardian article, because I’m only at $49.30 and my target is $49.63.” I don’t think so. My goal is to make a reasonable profit and get out without damage. That’s my target.
Similarly, in swings, I keep going until the market signals the risk/reward ratio is turning against me. If all lights are green and I’m riding a trend, I’m not going to sell at $50 just because I set that as my target a week before when $52 is looking quite attainable. If the trend changes on me or what looks like a typical three-day sell-off starts, I’m not going to try and ride it out because I set a target at the outset of a $5 gain and I only got $4. That seems silly to me.
The most I’ll do is look at the chart and see a likely ending zone. That can be based on prior price action or any of a number of other factors. Maybe I just want to make sure I get out before the weekend, or some earnings news. Lots of decisions can shorten a trade. Having a “target” isn’t one of them.
Targets are gimmicks used by sell-side brokers and analysts to make themselves sound like they know what they’re talking about and convince you to buy or sell. When an experienced trader talks about targets, I have a pretty good idea where they’re coming from, and I know that’s not my bag. I don’t need that crutch from a broker. Hey, if it works for you to organize your thoughts, terrific.
There’s an old military saying. “No plan survives contact with the enemy.” Same way with this target idea. The market here is the enemy, and no target is going to survive what the market does or does not give me. I simply don’t set targets in Dollar and Cents terms. Selling at such a “target” would be a pure coincidence of many factors.
Targets don’t interest me. Period.
One Response to “Why I Don’t Set Targets”
The Big Ragu
Nice Job!