Setting Objectives For Forex Trades

When talking about trading financial markets, including currencies, "system" is almost always taking central stage. By "system" I mean set of rules that dictate when trader gets into the market, irrespective whether it is short or long position.  A lot of energy is devoted to finding perfect strategy, in most cases focusing on entry rules. Unfortunately, no trading method consists only of getting into the market. There are other elements that must be carefully incorporated into a system, such as money management, stop/loss and target, objective, setting rules. It is really amazing how many people overlook one or more of these variables, creating incomplete trading plans.
Everybody knows why stop/losses are important, even though a lot of us ignore this "obvious" knowledge in real life trading. But why targets, why are they important, if not instrumental to trading success? Well, we can't be profitable unless we actually bank profits on our trades. This means we have to close them at price better that we got in( short or long). Since markets are in constant movement, we should know how far we expect them to move our way and try to take profit at predetermined point. Not that it will always happen the way we want, but we must have a plan in place, rather than getting into position and hoping to close the trade sometime in the future.
How exactly do we go about setting targets for our trades? There is no one simple answer, since many methods of choosing objectives are in existence, but in almost all cases exit strategies are directly dependent on entry systems. Among them:
- fixed number of pips, always trying to get same number of pips, like 20, 50, 100 or so;
- time based exits, closing trades at predetermined time, like end of a session, end of day, week or some variation;
- using previous resistance/support as targets;
- staying in trades for as long as trailing stops keep positions active. One such technique was described in Price action Forex trading. Using technical tool like Parabolic Stop and Reverse also suits this purpose;
- employing technical indicators to determine oversold/overbought levels at which to close trades;
- when using crossover strategies for trading, such as Moving Averages, or MACD, waiting for next one to happen. In cases like these backtesting provides some evidence of what can be expected;
Most of the trades I cover in this blog are discretionary in nature, but are largely what I call Swing trading. This is nothing more than analysis of most recent price swings. In very simple terms, "swing" is a distance price covers between high and low (or low and high, depending on point of view). Those highs and lows are also "pivot points" for price movements. Most recent swings are used as a tool to set targets for next moves.
 Here is a simplified example of a price swing. Movement from point "A" to "B" is a "swing" with either one being a "pivot point" when price moves to the other side. In this example I will be discussing price reversal. After a down trend I think that move is running out of steam and will be changing direction. Going above most recent high (A) creates buy situation with "A" becoming a pivot point.
According to simplified swing trading theory, once pivot point is established, in this case it is minor high "A", price should move on to its other side by by the same distance as it  reached before the reversal happened.
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