![[How to set proper profit targets (hint: it’s not about your risk-reward ratio)]I laugh to myself whenever I hear trader...](https://img4.medioq.com/175/296/441674951752960.jpg)
06/04/2024
[How to set proper profit targets (hint: it’s not about your risk-reward ratio)]
I laugh to myself whenever I hear traders comment:
“You must have a minimum of 1:2 risk-reward ratio if you want to be a profitable trader.”
Now let me ask you…
What’s so special about having a 1:2 risk-reward ratio?
Why not have a 1:10? Or even a 1:100?
So here’s the truth…
The market doesn’t care about your risk-reward ratio—it goes where it wants to go.
The only thing you can do is, observe what the market has done previously, and use it as a clue to where it might go in the future.
For example:
If the market previously collapsed at $100, then the next time it approaches $100, there’s a possibility of selling pressure coming in at that level.
As a swing trader, you don’t want to set your target at $105, $100, or $110 because the market might not get to that level due to selling pressure.
Instead, you want to exit your trade before opposing pressure steps in which is before $100 (around $99 or so).
This means if you’re in a long trade, you’ll want to exit your trade before:
•Swing high
•Resistance
•Downward trendline
(And it’s just the opposite for a short trade)
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