Traders and investors often thought they are listening to the market.
Follow the take profit target, closely following the company financial status.
In fact, above are not really listening the market in my opinion. Rather it is your own expectation.
Take profit target is derive from the previous price action and "forecast" the future possible price movement. Yes, forecast is predicting instead of following what is happening NOW.
In the stock market, current price action reflect on the intention of the big boys, whether they want to push higher or dump the shares.
With your forecast, you are expecting the price to move towards your expectation. What if it does not? Then you will lose some profit or even in the loss.
Is totally fine to have a profit target, but to be more realistic, you have to ditch the expectation and follow what is happening in that stocks now.
For example, in Technical Analysis you have resistance breakout stock, entry price at RM 1.00 and your profit target is RM 1.30, cut loss is 5% from entry price, RM 0.95. But the price starts to turn south when it reach RM 1.20. What should you do now? The most common action taken by the traders/investors will wait and see, "since i got some profit to lose" mindset.
Unfortunately the price doesn't rebound and hit your cut loss point at RM 0.95. Your position from positive turned to negative. Worst thing is, price rebound after you exit and hit the target.
Based on above examples, don't you felt that the stock is trading you instead of you trading the stock?
What's next? Common actions that a normal trader will do after above incident.
- Lower cut loss in the next trade to 10%.
- Set lower profit target next round.
- REFUSED TO CUT LOSS & Hope it will go up.
all of the above actions not only expose yourself into greater risk and losses. It also limit you to maximize your profit. This will lead to unhealthy risk and reward ratio.
What will a True Trader do on the above situation?
|Operator Intention||True Trader||Normal Trader|
|Start Pushing @ RM0.86||Monitor big boys, shows signal they want to push up
and move in with them
|Wait for Breakout at RM 1|
|Attract traders in with Resistance Breakout for distribution||Still have intention to push up to attract buyer, hold||Enter & set profit target at RM 1.50|
|Avoid normal trader selling, dump in small bulk before reaching normal trader's profit target.||Take profit at RM 1.2||Praying to hit profit target|
|Huge throw out||Looking for other stocks||Wait & See, still have profit|
|Share price down to RM 0.96||-||Wait & See, haven't hit my cut loss point.|
|Share price plunge to RM 0.88||-||Wait & Pray, hope it will go back to breakeven|
Can you see the difference now?
There are big boys in any forms in every financial market. How far the price can go it determined by the big boys, not us nor the previous price level. In order to put ourself at lower risk and maximizing the profit, we should follow them.
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This blog is for educational purpose only. It is not and advice or recommendation to buy or sell financial instrument. Viewers and readers are responsible on your own trading decision. The author of this blog are not liable for any losses incur by any investment or trading.