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Professionals Have Entry Targets, not Profit Targets

By Jack Broz

One of the most common questions traders ask is "What's [your] price target?" I see it in the MrTopStep Trading Room chat log. I get asked it when I speak to groups.

It's funny, but the only place I DON'T hear it is on the trading floor.

On the floor, the question is always about entries. Other traders ask me my thoughts on a particular entry.

Money management, not greed, determines your profit target

So let's look at this from a couple different angles. One is money management. As a trader, you need to manage your trades in the manner that fits what you are trying to accomplish. How many ticks can you lose in a day? What profit "goal" (if any) do you have when you start the day? How is your current week going? Month? All those need to factor into how you are handling a particular trade.

You can lose money taking profits

"You can never go broke taking a profit" is another one of those trite comments that "educators" and trader-wannabes like to throw around. Well, you will go broke taking a profit if your profits are smaller than your losses.

So learn what a "fair" profit is in the market(s) that you trade and when that increment is hit, take a partial profit. Then move stops on any trailers to scratch and see where the market goes. Your question should then be "Where is resistance?" or "Where is support?" depending on which direction you're faced. That lets you manage the trade your way.

What if the trade runs halfway to support and your open equity becomes three times bigger than you ever had on a trade in your life.... do you really care where someone else's target is?

Different markets have different targets

So, in the December mini-Dow futures (YMZ13:CBT) what's a good initial target? 8-10 ticks.

  • December E-mini S&P 500 (ESZ13:CME)? 2 handles.

  • 30-year Treasury bonds (ZBZ13:CBT)? 2-3 ticks. Then get the stops to scratch and see where it goes.

  • Think like the floor traders--the professionals. All any real trader wants is opportunity. That's why they search for entries. They know how to manage trades; they just want the opportunity to get in one.

    The real goal is to maintain discipline

    Now, discipline factors into all this, too--discipline in all areas:

  • The discipline to stay patient and wait for trades that make sense to you

  • The discipline to place the trade when it is there

  • The discipline to put the stop at the correct level

  • The discipline to hold the trade to the correct target

  • As a trader once said to me, "Human beings like to be right," and he went on to explain why that causes so many new traders to fail. "They will let a trade go against them way too much because they can't take a loss.

    "That would be admitting they are wrong ... so they wait ... and wait. But when they get a winner - and they see those green numbers on the open equity--all they have in their brain is 'I'm right! I'm right!' And then they prove it to the world by taking a tick."

    As always, use stops and keep an eye on the 10-handle rule. Don't forget to catch MrTopStep on The Closing Print video found under the OptionsTV page (top bar). We report directly from the SPX pits, wrapping up the day and positioning for trade tomorrow.

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