How Price Targets Shoot You in the Foot

Establishing price targets hurt your trading performance.

Human beings are “bad” at prediction. There is not much science in guessing where a bull or bear run will end. Previous highs don’t necessarily infer a price point where a rally will stall.

Fundamentals do matter.

Institutions – the biggest traders in the crowd – place their wagers based upon fundamentals and their overall business. With billions of dollars on the line, they’re not much concerned with intraday price data. There’s no reason you should either.

Much of what institutions do on the commodity side is based upon DATE, not PRICE. Follow the elephants, not the piker traders dancing between their feet.

If you don’t have a simulator, you can trail structure with a protective stop. You’ll make much more money staying in your winning trades, rather than cauterizing them too prematurely. Plus, you save time in that when you wake up every morning, you already have winners in your portfolio. Leave them there.

Place your protective stop on your unrealized gains where you’ll be financially and psychologically ok if you stay in the trade and eventually get stopped out.

You can ask yourself “How much of my unrealized gains am I willing to risk in order to stay in the trade longer?” The recent bull move in the S&P is a good example of how you can (and should) let your winners run.

Once you experience this a few times, you’ll become very comfortable with this strategy. You’ll come to find that “you didn’t have to do anything extra” to make the additional gains.

Sit on your hands and forget price targets. Let the market tell you when the move is over.

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