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Read the quote first.

It is this basic psychological pitfall that I try to avoid by defining as precisely as possible trades [set-ups] that I will trade, and those that I will avoid.

In essence we have an Entry and two potential exits. The first exit will be for a pre-defined loss at a Stoploss exit. The second exit will be for a profit at a profit target that exits our position.

The MINIMUM entry that I will consider is a 3:1 ratio. I would prefer a ratio in excess of 6:1 [or greater] Thus as an example; The low of the day is $177.33 and current trades are at $178.00 on an analysis basis I feel that price will reach $182.30

My stoploss will be $177.23. Therefore for each 100 shares I risk $77.00 for a potential reward of $430…this trade will be placed with the maximum number of shares that defines my trading capital defined maximum loss. On a daytrading basis, that stands at 0.5%-1.0% which is pretty tight.

This brings us to the important point. Stops are easily defined and are historical fact. Profit targets lie in the future, and are speculative, based on probabilities of your analysis or set-up.

I subscribe to randomness in daytrading, thus all entries are 50/50 at best. How then to define a probability of a profit target being reached?

This is quite a complex question, and all traders will have their own methodology of deciding upon profit targets; previous price levels defined as resistance/support that are measured via trendlines, pivot points, P&F, EMA’s, MA’s, Oscillators, etc.

From William Eckhard;

“One common adage on this subject that is completely wrongheaded is: you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.”