One of the most popular Forex trading strategies is target trading. You can use this information to construct profit-taking points, or targets, at which to exit or partially exit your position. Especially when you can determine how the market is trending and anticipate how the price will move.
Grid trading is a type of target trading in which traders issue conditional stop entry orders ahead of time and set the profit target for each pending order.
Why Trade with Targets in the First Place?
Setting reasonable targets before executing a trade, forces you to think about the risks and benefits ahead of time. By setting a goal, you may determine a reasonable profit-taking value. And, as a result, you can also set the risk-to-reward ratio before taking a trade.
An ideal target is achievable and indicates a point where risk and return are nearly equal. It, on the other hand, limit possible gains by abandoning a trade at a specified moment, regardless of what happens after the target is met.
Suitable Market Condition for Target Trading
Profit goals are used on high-risk trades to lock in gains at incremental points, reducing potential losses. With them, stop-loss orders are also used by some traders to bookend bets, limiting losses in the other direction if the market moves against them rather than toward the profit objective.
Conditional orders are used by some dealers. In other words, if the price hits a certain level, a conditional order is triggered, and you should enter them in a specific position. Learn more about the pending orders as it will help you to understand the pending orders used in the target trading system.
Setting Proper Goals
Such targets can be set up in a variety of ways. Identifying support and resistance levels and establishing a profit objective at the resistance value and a stop-loss order slightly below the support value is the most popular strategy.
Place a trend line across the peaks and troughs on your price action graph where price reverses in the opposite direction to identify support and resistance levels in a rudimentary method.
A pivot point analysis can also be used to determine support and resistance levels as well as goals. It uses the previous day’s average high and low closing points to determine the current trading range—that is, support/resistance levels.
The price will continue to break over its previous resistance threshold in a strong trend, forming a stair-like pattern.
By setting your profit goal at the established resistance level, you’ll be able to lock in profits every time the price breaks through this range, allowing the trend to continue.
Traders attempt to predict secondary support-and-resistance levels for new gain-targets and stop-loss orders by using the width of the present support-and-resistance range as a reference.
Profit targets can also be set using the average true range (ATR), which is a market volatility indicator. The average daily price change for a currency pair is represented by the ATR value.
You can create a reasonable profit objective for the next day by multiplying the ATR value by the current market price. But remember, unless you truly understand the ATR indicator function, you should not rely on it.
Although support-and-resistance levels, pivot points, and the ATR can all assist you in determining goals, keep in mind that these are just approximations. To place them more efficiently, you must first learn about the market and be able to determine the strength and direction of the present trend to predict when a reversal is likely.
Because if you can’t figure these things all by yourself, you still need scopes for improving your trading games. It will be impossible for any trader to perform set ideal goals until he learns the other concepts and how to deal with them properly. The same goes for any other strategies in the Forex market.