Determine Realistic Profit Targets

C

carltonp

Hi Traders,

I attempted to post earlier today but it doesn't look like it went through so will try again.

I was wondering if someone could tell me how they determine realistic profit targets?

At the moment my method is looking at the spread. So, I'm looking at a stock today, ESRX with a view to purchase at $53.33 and target price of $55.76 to be achieved over two days. I'm therefore looking at a spread of $2.43.

At the moment I just looking at the spread to determine if its realistic. So, $2.43 doesn't look unrealistic but I'm sure there is a more scientific way of determining realistic spread.

One school of thought is ATR.

Any comments will be greatly appreciated.

Cheers

Carlton
 
Hi Carlton,

I've attached a few profit target ideas that I've personally found helpful. I like to apply fibs for entry and exit, which means in this case, I'd hold out for 57.00-58.00 (just under the 0% line, double-top area), but that may take a week or two to get there. Based on the fact that the weekly chart is extremly bullish, i'd be willing to hold out for the extra profit. If you want to get out quick, I'd look for profits at the short-term down trendline (yellow line on attachment). Btw, I use 8/31/10 as the fib anchor point.

Regards,
Phil
 

Attachments

One way you can set profit targets is using the data you have in your paper trading. Actually I use the following formula for profit target:

CRITICAL PROFIT TARGET = (%Loss x Risk Money)/ %Wins

Where %Loss and %Win are the percentage of losses and win of your trading system that can be determined using paper trading or historical data.

Risk money determines your risk profile. The lower the risk money the more conservative you are.

More details here: Stock Exit Strategy: Formulating an Effective Profit Targets
 
TradetoWin

Thanks mate.

Can you please explain what is meant by:

"% Win of your stock trading system?" &

Would I be correct in saying if the percentage of my trades that closed for a profit was 64% then the loss of my system would be

100% - 64% = 36% ????

Can you also explain the concept behind the

"%Loss of your system"?

Cheers
 
I've just done a test on profit targets here http://www.myforexdot.org.uk/profit-targets.html


In short -

They always degrade the performance of trend following systems on quiet but trending markets, on those markets just get as much profit as you can by riding the trend until it ends.

A moderate profit target can improve things on a volatile market.

The smaller the profit target the higher the percentage of winning trades, but not the better the system. Tiny profit targets are generally bad.
 
I've just done a test on profit targets here http://www.myforexdot.org.uk/profit-targets.html


In short -

They always degrade the performance of trend following systems on quiet but trending markets, on those markets just get as much profit as you can by riding the trend until it ends.

A moderate profit target can improve things on a volatile market.

The smaller the profit target the higher the percentage of winning trades, but not the better the system. Tiny profit targets are generally bad.
 
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