There are a number of ways to calculate a profit target. But I have always kept my method simple.
I call it my Profit Target Projection Method (PTPM). It sounds kind of fancy, but it’s not. In fact, its super basic, and it works.
Here is my simple definition:
“Profit targets are merely previous support and resistance levels.”
This should be self evident if you know what support and resistance are, which you likely do. If not I will show you below.
Here is my deeper definition:
“Identify profit targets by locating the most recent key support and resistance levels.”
So, two operative words in that sentence, ‘locating’ and ‘key’ are important qualifiers.
When you look at a chart, you can see all the price bars to the left. The more recent price action, are the price bars closest to the current bar, and these are the more relevant levels.
However, just because they are more recent doesn’t qualify them as ‘key’. What makes the price bars key S&R levels is they are part of a group of bars that have formed a level of price action that goes “sideways” and pauses an uptrend or a downtrend.
Or, the price on a singular bar has reached a high or low point in a trend and did not exceed that level afterward.
Gaps in price also form good profit targets. With price above a gap as support at the high level and below a gap as resistance at the low level.
Suffice to say, the principle is to always look back at these key levels for your profit targets and place your orders just shy of their number, to increase the chance they will be hit.
Here are some examples:
If you have trouble with any of this information or need a question answered, place a comment below and I will provide further guidance.