Gauge Market Conditions
There are a few things you should consider when judging how much profit you should aim for on a trade. 95% of the time you should just go for your normal S+R line target discussed above. However your targets should sometimes change depending on market conditions. In a very fast trending market your targets should be much higher. In a very slow ranging market your targets should obviously be much lower. How do you know if a market is moving fast or slow?Slow: A slow market is usually a ranging market. You can tell the pair is moving slowly when it is moving far below its ADR. So on GBP/JPY with an ADR of 286 if the market is ranging 150 pips I would call it slow moving
Normal: 95% of the time the market will just be in normal conditions. When the market is moving at or near its average daily range it is a normal market.
Volatile: A volatile market is usually a strong trending market. You can tell the pair is volatile when it’s moving far above its ADR. Again using GBP/JPY as an example ADR is 280 if the market is moving 350 pips it is fast moving.
Holding a 70 pip target and stop in a very fast moving market is not a good idea. The price is moving much faster than normal so a normal target and stop will not be as effective. So when market conditions change you need to change your targets and stops.
Picking Targets For Market Conditions
Again I have a little equation that makes all this stuff very simple. To pick your targets for a slow moving market you just take the ADR and divide it by 5. This is exactly the same as figuring out your scalp line targets. Using GBP/JPY as an example:GBP/JPY ADR = 281 pips
281 / 5 = 56.2
GBP/JPY Slow moving market target/stop = 55 pips
To pick your targets for a volatile market you take the ADR and divide it by 3. Again using GBP/JPY as an example:
GBP/JPY ADR = 281 pips
281 /3 = 93.6
GBP/JPY Volatile market target/stop = 95 pips
That is all you have to do. Now whenever you notice the market is moving far above it’s ADR you use your volatile market target if it is moving far below you use your slow market target. As always these may need refining with time but they are a great starting point.
