I don't care how good your analysis is. There are NEVER any certainties that a target will be hit.
So let's look at a little technique which can help your decision making during both the trade planning and trade management phases.
This article idea was prompted by some great email Q&A I received recently.
Let's start with the email question and response. I'll then expand upon part of my reply, as I think it's an important topic that deserves further discussion.
The email included a 30-minute Higher Timeframe chart. It's not reproduced here. It's sufficient to know that the higher timeframe is in an uptrend.
The following is the 3-minute Trading Timeframe chart showing the prior day in the left half and the current day to the right.
Click on the image if you want to open a larger copy in your browser… or just skip down lower to where I've zoomed in to the current session.
Let's zoom in now to show just the current session:
The question is quite clear from the text on the image, but just to be sure I'll include the email text as well:
As per chart on 17th I was long on the days range low also the price was above the previous day close. So decided to go long on range low (865 with sl 862) as the major trend in 30min was in up trend. So I was right in my analysis however and kept my position open even though price hit the range high of the day with the expectation of reaching the target of 874. However it didn't went as per the expected and my SL got hit and post my SL hit , price went till 875 and hit achieved my TGT. Sir if I m wrong and my SL get hit I can understand that, however if I m right and my SL space is right and my Sl get hit and post that TGT is achieved . How to handle these kind of situation?
SO HERE'S THE SITUATION:
I must say… I love the trade entry. From a YTC perspective it's aBOF of the low of day support, coinciding with the prior day's high resistance, in the direction of a longer-term uptrend.
Very nice trade idea!
The following was my response:
You ask, "How to handle this kind of situation?"
There is no "situation" here. What has happened is completely normal in the markets. The nature of price is that it often involves tests, retests, probes, spikes and all manner of action that traps people and stops them out before going on to the target. This is completely common.
How I would handle it (accepting that this is hindsight analysis and I didn't actually trade this market):
(a) The market on this trading timeframe is ranging. You entered beautifully. But I would have taken at least partial profits at the range high. It's the nature of ranging markets that they will continue to range, until orderflow triggers the breakout. There are no certainties in the market. So while you identified a good target much higher than the upper range boundary, surely you MUST have in mind the potential for the range resistance to hold. In that case, take part of the position off.
(b) And then being stopped out on the remainder, why did you not get back in? There's a beautiful re-entry just after 14:00.
Look back through my site. There are numerous articles along the theme of sometimes trades take multiple attempts. Here's one of the recent ones – http://yourtradingcoach.com/trader/how-i-think-on-trade-exit/
Sometimes a trade takes two attempts!
LET'S EXPAND UPON ONE KEY POINT
This is the point of today's article.
As mentioned earlier… I don't care how good your analysis is. There are NEVER any certainties that a target will be hit.
So here's a little tip which can improve your decision making regarding targets. After selecting your target, apply a degree of confidence.
For the example above, instead of saying "the price target is 874", the trader might have said "the price target is 874, with a 70% degree of confidence".
Or whatever other percentage they thought was appropriate.
The thing is – it's NEVER 100%.
In fact, I'd go as far as to say you should never select more than maybe 80%.
How does this benefit you?
It forces your mind to accept the possibility that the target may not be hit. If we selected the target with a 70% degree of confidence, then this means there is a 30% chance it won't be hit. So in planning out the trade we might consider alternate IF-THEN scenarios involving possible exits at the range highs, should they fail to break.
Give it a try. See if this helps improve both your trade planning and your subsequent trade management decisions.
And for more advanced application… continue to update that degree of confidence as more data unfolds in real-time.