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Monday, September 1, 2008
Setting Price Targets
One of the perennial questions that we are asked is concerning price targets. Specifically, why don't we set a price target to sell at? The flip side to that coin is a protective stop. You will hear us talk about protective stops much more frequently on the downside than on the upside. A true market professional uses protective stops to also maximize their upside by using a trailing stop. You should not set a target price on a stock; it all comes down to the mentality of the trade. This is illustrated with these two examples:
Example 1:
You buy a stock at $4 and set a target at $6. The stock climbs to $5.80, and then drops back down to $4.25. You've just lost out on a huge gain because your target was not reached.
Example 2:
You buy a stock at $4 and set a target at $6. The stock hits $6 and you sell. You've made a nice profit. The next week, you're looking at the stock and notice it's at $8, Oh my, by setting a target, you just put a limit on your own gain, bad move.
Setting a target price is limiting your potential profit. You are setting yourself up for the emotional side of trading because, either you had something close to your target price but lost the profit because you didn't sell near it. Or you could have had so much more if you had just let that winner run. You'll wind up torturing yourself over the trade because of what could have been.
David Colletti
Founder
StockTradersHQ.com
The Headquarters for Precision Trading in Real Time
This article is courtesy of David Colletti, a ten year veteran stock trader and founder of StockTradershq.com. Our staff of professional technical traders analyze 1,000's of potential stocks every day to provide you with a list of stock recommendations nightly with the greatest potential for explosive gains. These stock picks are traded with our real-time portfolio. Email alerts are sent to members for every entry and exit. Our subscription service provides all the resources, stock picks and tools an investor needs to make very profitable, consistent trades while maximizing gains and minimizing losses. StockTradersHQ.com offers a 21 day free trial with full member access.
http://www.stocktradershq.com/
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