The Daily Market Forecast... optimizing targets

Thursday’s Blog Results: The long level triggered and popped for 4.25-point scalp. Did you stop out or get dinner money?

Quick Tip: Optimizing targets.

Stops are so easy. Pick your risk number. That gives you position size. Hit enter.

Targets are elusive. The Trading Gods made it that way, I think. And it gets worse if you’re a day trader and watching the chart!

If you ask yourself what would be the best stat to know when you enter a trade, eventually you’ll come to the answer that matters… how far in my direction will it go? This is called Maximum Favorable Excursion (MFE). We’ll never know this but we can use probabilities to help our target placement.

Here’s how: Based on your rules for entry and exit, log the MFE for every trade starting today. You should do this for every trade setup your strategy presents, whether you took the trade or not. If you have the ability to go back and add this to prior trades, spend the whole weekend doing it.

Once you have a sizable dataset (at least 100, our dataset is nearly 10,000) it’s simple to figure out the probabilities. For example, in the Volume Profile strategy we trade, a 2-point target fills 64% of the time. A 4-point target fills 45% of the time. Seems like these would be great targets to use for scaling out, doesn’t it?

Move your stop to breakeven after filling your targets and you would have captured 6 points on the chart above. Not a big winner but a winner nonetheless.

Today’s Best S&P Futures Turning Points (Plenty can change by the open, be aware):

Short Level: Sell 4445.25 stop 4449.50.  

Long Level: Buy 4360.00 stop 4354.75.

Trade well,

Mike Siewruk

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