How Can I Tell If My Trade Will Hit Its Profit Target?
The short answer is that you can’t. No matter how hard we traders wish, hope and pray, we still cannot predict the future.
As with many aspects of trading, there is no absolute answer.
The above being said, there are ways to determine if the probabilities on a particular trade might be skewed in my favor. In other words, I have an “edge”.
Here’s what works for me…
First off, I will look at the strength of the longer term trend and the amount of room the pair has to move in the direction of my trade. If the trend is weak and there are numerous levels of support or resistance the pair has to move through, the less likely the profit target will be hit. If the target is hit, it will likely be a long and bumpy ride.
If the longer term trend is strong and there is little or no support or resistance in its path, the trade will have a greater probability that the profit target (limit) will be hit.
Take a look at the historical Daily chart of the NZDCHF pair below…
We can see that the pair is in a downtrend since price has been making lower highs and lower lows and the pair has been trading below the 200 Simple Moving Average (green line) for months. Knowing that, we are only looking for a technical reason to short the pair for a higher probability trade.
Trade in the direction of the trend and have room to move toward the target.
So, should price break support at roughly .6740, there is no support below that level until around .6440 – about 300 pips. This is our set up. Having a trading set up does not mean we have a winning trade. It does not even mean that our trading setup will trigger. It does not mean the if that .6740 level of support is breached the pair will drop like a rock. It merely means that our set up has potential. It is a trade in the direction of the trend with room to move when/if support is taken out.
On the other hand take a look at this historical Daily chart of the GBPAUD below…
This pair is also in a downtrend and we would also be looking to sell this pair. Unlike the NZDCHF pair however, it has several levels of support standing in the way of the trade achieving it ultimate profit target at about 1.5040.
In looking at the two charts it is readily apparent that there are some roadblocks that may prevent the GBPAUD from limiting out whereas there are no roadblocks (support levels) between the entry and the limit on the NZDCHF pair.
Based on the above, the trade with the greater likelihood of achieving its profit target would be the NZDCHF.