Should I Use Price Targets in My Trading?
I have come across a number of discussions in forums and on blogs in which people state that having specific price targets is a requirement of good trading, especially for new traders. As a broad statement, this is something I completely reject.
Targets are a tricky thing. To use them you need to have a pretty good methodology for identifying them. Most new traders are no so equipped to do so in a discretionary fashion. If a system has a built in targeting methodology, that’s fine. If not, a new trader shouldn’t be attempting to overlay one.
Remember, not all systems are suited to having targets. Consider the trend trading approach. It’s one where the trader is attempting to catch the big trends in the market and ride them for all they’re worth. If one were to put a target on a trend trade it would mean risking missing out on the really big winners which represent the trades that often determine the overall performance of the system. That being the case, putting targets on the trades is a self-destructive idea.
Of course, some systems are well suited to targets – particularly ones where range trading is the main thrust. In fact, not using them in that case would be rather foolish.
One contributor to the discussion actually agreed with me about targets, but then went on to suggest that newbies incorporate scale-out targets in their trading. Again, I am opposed to that unless the systems specifically indicates doing so.
Why? Because one of the biggest problems new traders have is sticking to their trading plan and system. If one were to incorporate targets into a system which doesn’t employ them then that’s not following the system. Furthermore, since the performance of the system will likely be degraded by using the targets, it provides one more thing to encourage the trader not to follow it.
My larger point in all this is that there are very few absolutes in trading – as in life. People who try to put forth specific hard and fast rules often do new traders a disservice. Be careful with absolute statements and realize that you need to view things in terms of what you are trying to do in the market and what best suits your specific needs.
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