Many new/retail traders fall into the trap of entering a trade because their magic indicator has given a signal. They set a take profit target x ticks away and a stop loss y ticks away. Perhaps x is double y for a perceived 2:1 reward:risk ratio. Over time, this fails and they lose money.
We don’t get on a train because it’s pulled into the station and the doors have opened. We get on a train because we want to get off at our destination. We have planned our exit from the train before we get on to a train. If the train we planned to board is delayed or cancelled, we may get on another train to reach our destination once we’ve made an alternative plan. Trading is no different. If you have no plan of where to exit your trade that’s based upon the market’s structure and context including the supply and demand levels that can be seen within the historic order flow traded volume, you have no reason to enter any trade.
Here is a great example of how establishing a target first can lead to highly profitable low risk trading. This example is on ES from 12 September 2019.
Around 09:10CT, Bloomberg reported that the US may be considering an interim trade deal with China. The market started moving up incredibly quickly. Our opportunity came about from the high of this move up leaving us with Unfinished Business at the session (and initial balance) high at 3020.50. Now we have a target so we can look for an opportunity to trade to it.
Around 20 minutes later, CNBC reported that Trump was denying the possibility of an interim deal. The market moved back down pretty much as quickly. It stopped two ticks short of the day’s low. The move down showed exhaustion, absorption and aggressive trading in the opposite direction. Price Rejector Pro picked up all of this in the area 3001.50-3002.00 for a very nice low risk, high reward trade opportunity that yielded around 70 ticks profit vs 6 ticks of risk.