Reader Question: “What are your thoughts on stopping each day at a daily profit target?

Firstly, can I be a little harsh and say that this should not be a question. Test the idea on your own data. Look back at the last several months of trading and ask, “How would the equity curve change if I stopped each day at “x” dollars?“. Adjusting “x” to suit your trading obviously. And considering for a range of values for “x”. The data will tell you whether there is improvement in outcomes, or not.

Do the work!

And then my thoughts become largely irrelevant.

That being said, let me answer your question. Because it is a good one that I’m sure many others would be interested in.

We’ll start with a quick answer first. If I had to provide a simple YES/NO response then I’d say that YES, the majority of traders would be better off using a session profit target.

So I look upon the idea quite favourably.

But I think we can do better than a simple YES/NO response. So let me expand upon this and offer an alternative.

The advantages are obvious. A daily profit target locks in your gains at a high-water mark. And prevents subsequent giving back of those profits.

There are two major problems though.

(1) You underperform at those times when conditions are highly favourable and you’re reading the market well. You’re stopping after the entree when the market is offering an all-you-can-eat buffet!

(2) You risk destroying yourself in trying to reach that daily profit target, when conditions are unfavourable or you’re not trading well.

This second one is the big one. The first not so much, if stats still show edge anyway. It may be sufficient for your goals and needs.

But this second one! It needs serious consideration.

The presence of a daily profit target creates an underlying need or desire to PUSH to reach that target.

“Man, I know conditions are shit and that last trade was lucky, but it’s got me two-thirds of the way there. I just need one more good win. Let’s do it.”

For sure, you’re going to have a loss and give back that two-thirds gain.

Or worse…

“WTF. This f*&#n market is f*&#d. Ok… I’ve got this. Ignore the drawdown. I can recover this. Let’s go.”

Almost without doubt, a record drawdown is coming your way.

Not every session will let you reach your daily profit target. So WHEN WILL YOU STOP digging yourself into a deeper and deeper hole? How deep will you allow yourself to go before you walk away? How difficult will you make it for subsequent days to overcome this drawdown?

Again, a deep dive into your trade data will be needed. But it is absolutely essential that you have a hard session stop… never to be violated… for those times when you don’t achieve the daily profit target.

So here is how I’d consider improving the idea of a daily profit target:

(1) Recognise that the outcome each day will be a function of (a) the conditions on offer that day (favourable vs unfavourable) and (b) how well you’re trading those conditions (in-the-zone vs amateur-hour).

(2) Always protect the downside first with a hard session stop. NEVER to be violated.

(3) And manage the upside, not with a fixed daily profit target, but with decision points. Times, events, or even dollar values which trigger some questions. “How good are conditions today? How well am I trading them? What are reasonable expectations given these conditions and my trading performance today? Should I continue, or stop?”

So yes… point (3) can include a dollar value that you might consider a “daily profit target”. But it’s a loosely-held target. It’s not a STOP SIGN. But more of a rest stop where you can pause and consider the options.

And perhaps if you recognise that conditions are fantastic, and you’re trading well, that it might be worth continuing. Perhaps with a safety net of a trailing stop on your daily profits.

<image: My thoughts on daily profit targets>

<image: My thoughts on daily profit targets>

<image: My thoughts on daily profit targets>

<image: My thoughts on daily profit targets>

So yes, implement a daily profit target. But consider it a decision point. Not a fixed stop.

Maybe even multiple profit targets.

And maybe other decision points as well. For starters…

  • Key timings such as completion of the opening hour. And perhaps entering the final 60 or 30 minutes of your session.
  • Key outcomes such as “More than half-way through the planned session, having finally fought your way back to positive after an opening sequence of losses.”

Ultimately though, my initial response is probably the best and I could have (should have) stopped there. Test the idea with your data. Maybe it says without any doubt that you should always stop at your daily profit target.

Do the work!

But also, in future, when you’re facing a question about “Should I do (a) or (b) in my trading?”, maybe the answer need not necessarily be one or the other. Maybe it can be, “Well, why not both? Why not pause and consider which is the right option in the current context?”

Essentially, a decision-point with multiple options, rather than fixed rule.

Summary of my thoughts on daily profit targets:

(1) Recognise that the outcome each day will be a function of (a) the conditions on offer that day (favourable vs unfavourable) and (b) how well you’re trading those conditions (in-the-zone vs amateur-hour).

(2) Always protect the downside first with a hard session stop. NEVER to be violated.

(3) And manage the upside, not with a fixed daily profit target, but with decision points. Times, events, or even dollar values which trigger some questions. “How good are conditions today? How well am I trading them? What are reasonable expectations given these conditions and my trading performance today? Should I continue, or stop?”

Happy Trading,

Lance Beggs

PS. This was an earlier attempt to answer the question, approaching it from a slightly different angle – https://yourtradingcoach.com/trading-business/session-management-should-we-use-daily-profit-targets-or-not/

PPS. Not all days are equal. Some are more favourable and demand that you push for more. Some are less favourable and mere survival should be a goal. This idea was expressed in a social media post last year.

<image: My thoughts on daily profit targets>

And also the very next day…

<image: My thoughts on daily profit targets>

And a few much older social media posts with a similar message to the ones discussed above. There are likely more if you want to search for them.

<image: My thoughts on daily profit targets>

<image: My thoughts on daily profit targets>

<image: My thoughts on daily profit targets>

<image: My thoughts on daily profit targets>

 


 

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2 Comments

  1. Hi Lance,

    I totally dropped “profit targets” a long time ago. Personally I use ticks as my tracker to disengage my brain from the money. In my platform after the trade has closed I have no way to change the total gains or losses on the day showing as dollars, but when I have an active trade everything on my screen related to the trade shows as ticks. My targets and stops are also based on ticks. One real benefit is that as I trade more contracts I am disengaged from the money while I am managing the trade, so in real time a 10 contract trade is essentially no different than a 1 contract trade to my brain.

    1. Yes, 100%. This is so important for taking focus off the “money”. I’ve come across some traders who operate well with the dollars showing. But FAR MORE who find much greater performance through trading the way you’ve described. Thanks for the comment Murray. And best of luck with your trading in the new year.
      Lance.

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