The Daily Market Forecast... taking profits
Thursday’s Blog Results: The suggested buy at 4715.25 offered a modest 8-point run. The short breakout afterward stopped out.
Today’s Trading Tip: Taking profit.
If your day-trading strategy has edge then you won’t see many trades go against you to stop out immediately. Of course, you’ll have plenty of stops triggered, but most will show some open profit before stopping out or moving on to your target(s). This is the nature of trading small time frames intraday. Price can be “noisy.”
Every asset will differ, but you can and should find their price movements that recur over and over. This data will give you better profit targets.
Here’s an example based on the S&P futures trading a Volume Profile strategy with 9,508 trades logged. Price will FILL a 2-point target 62% of the time (meaning it moved at least 2.25 points to guarantee execution). Price will FILL a 4-point target 38% of the time and a 6-point target 25% of the time.
Now you know with hard evidence that if you’re entering trades expecting to see big runners most of the time you’re fooling yourself. Don’t fight the natural rhythm of price movement. Take advantage of it.
By making 2-points your first target, you’re booking profit quickly and significantly reducing risk. Call it a “risk management” profit target. Starting with 3 contracts, 4 points of risk, your maximum loss is 12 points. By taking that high probability target of 2 points, you’ve reduced your risk to a maximum of 6 points (50% reduction).
In the long trade yesterday that ran 8 points, if you were expecting a big move and didn’t know how the asset moves, you would likely have seen 8 points of gain turn into a 5.25-point loser (per contract). Using “risk management” profit targets you captured 6 points of gain.
Today’s Best S&P Futures Turning Points:
Short Level: Sell 4658.00 stop 4663.75 (5.75 risk).
Long Level: Buy 4616.50 stop 4610.75 (5.75 risk).
Trade Well,
Mike Siewruk
P.S. Join us every Saturday morning @ 10:00 ET for our weekly LookBack (5) trade review session. Every trade for the week is analyzed. Now open to the public. Meet the team. Ask questions. Register here for the December 18th session.