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Adjusting Profit Targets

Last updated 1/22/2010 6:21 PM EST (GMT -5) 8 Comments

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Bradley W. Gareiss

Technical Analyst, GFT

I post two profit targets on every trade.   These profit targets each have exact levels which are determined the exact same way for every single trade I post on FX360.com.   Not only does this help keep the trades consistent so it is easier to analyze results, but this also means it is easy for customers to update the profit targets.   Below I will cover how to update the profit targets if necessary.   It is very simple to do, but will pay dividends if you know how to calculate them on your own.   Note that this technique only applies to the patterns I use on FX360.com, not every form of analysis.

I calculate my profit targets by drawing a Fibonacci retracement tool from point C to point D.   It is a very simple tool to use on DealBook 360.   If you have any questions about configuring the Fibonacci tool, call your forex specialist and they will be happy to help you out.   Our first profit target (T1), is at 38.2% of CD.   The second profit target (T2), is at 61.8% of CD.   Make sure that you check so that you are at the exact point C and point D.   Even a couple of pips can make a difference.   Point C and point D are both labeled on the chart, so they should be very easy to find.

Point C is very easy to find because it cannot change once the trade has entered.   However, point D can move, so you have to make sure you are using the actual point D.   In other words, do not use the theoretical point D.   Use the actual point D where the currency pair turned around and began moving to the profit targets.   When I initially draw the pattern, I estimate where the real point D might occur.   This point is usually a little bit past the entry.

However, let’s say the pair reacts directly off the entry as it did in the current AUD/CHF trade we are monitoring.   In this case the profit targets will move farther from the entry, thus giving us higher profit potential.   If the pair moves farther past the entry than the estimated level, then our profit potential is lower.   Although we move the profit targets in this manner, we almost never move the stop.   The only time we move the stop is when we have reached T1, and then we can move the stop to the original entry.   Never move the stop farther away from the entry.

As you can see, it is very simple to calculate these profit targets.   Even if the trade has not been updated, feel free to adjust the FX360.com profit targets in the manner I have described.   Remember that once the trade enters you may have to move the profit targets more than once if point D continues to extend, but the extra effort is well worth it.

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Comments (8)

dons

January 23, 2010 at 01:37 PM ET

Sounds easy, can it be experimented with a demo acct?

lowdown

January 25, 2010 at 03:18 AM ET

Hey dons, I think this can be experimented with a demo acct. Depending on what acct you're with, most offer the tools described above. Or, if you're with an older co. providing a forex acct you could do what I do sometimes and do the math and draw the lines, because it's always 38.2% and 61.8% of CD. Just remimber point D is always undefined until pt D strikes, henceforth the adjustments of T1 and T2. Stay alert, dons, and keep researching, and you'll get there. Like the old saying "practise/practice/practice". Like Gareiss says above, a few pips can change everything about using the fibonacci technique

lowdown

January 25, 2010 at 03:43 AM ET

Also, pt D is a calculation as well, to develope our preconceived trade. As stated, the profit targets may need to be adjusted because pt D ( an initial estimate ) may not hit the estimated calculation.

lowdown

January 25, 2010 at 02:54 AM ET

I'm a new memeber here, although I have been frequenting this site for a while, about a year. I would like to send my thanks to everyone who contributes to the information provided here. I feel this is a very beneficial site to gain a better understanding for the average trader or a new beginner. I also greatly appreciate the host's of this site for offering their insight in trading the global markets. This has been a great tool for me and my trading strategy's. As usual, I feel this has been another great article to further my understanding of trading techniques. Thank you, all of you, Lady's and Gentelman for sharing the information you do. For my first post I just wanted to say thanks.

bgareiss

January 25, 2010 at 01:45 PM ET

Thank you for the kind words, I'm glad we can help. Brad

margaret

January 25, 2010 at 02:56 PM ET

This is one cool site. Everything about is fantatsic. Not just the look and feel but the navigation, the quality content, the friendiles. It has a huge community spirit and a sincerity between the members and the providers which feels trustworthy, inclusive and invigorating. I'm not one for networking sites, in fact this is the first site I have ever wanted to contribute to. Keep it up FX360!!!!!

NeoFX

January 26, 2010 at 12:42 AM ET

a good thing to keep in mind in searching for that point D (at least in my experience) is a newly established high or low before a pull back.. that is, a candlestick formation with one high or low candle with at least 2 candles that are lower to it to both the right and left of the middle one. that, along with a sharp break of an inner trendline typically confirms that that point was the D extension....no matter how much it blew thru your initial estimate and calculations.

Brad, any words on USD/CAD? waiting for it to hit that 78/% on 1.0632 but it's being stubborn and unclear.


Help? :-p

R

bgareiss

January 26, 2010 at 01:52 PM ET

I think you are reading too much into this. Point D is simply the farther point the pair went past the entry before reversing to the profit targets. There is no pattern in that area for the USD/CAD, so I am not doing anything with that pair. We did see some resistance at the bearish trend line and the 78.6, but who knows how long that will last? I typically like to have more levels of support/resistance than that in order to enter a trade. Brad

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