Charting and Studies User Guide - CQG.com

Page 568
Take Profit: A Profit-Taking Tool (SMRTpr)
Almost equally important as a stop loss order is the target price or take profit order. When
entering into a trade you must ask yourself two questions: “How much can I reasonably take
out of this market?” and “How far can I reasonably expect this market to move?” Even the best
trading signals can be worthless if no money management is implemented.
The volatility of a market can be a crucial factor when calculating whether a trade is worth
putting on. After evaluating where a safe stop should be placed, you must next determine if
the market has enough room to move in the direction you are trading without hitting major
support or resistance. If the risk / reward ratio is not in your favor, then you should not enter
the trade. As a general rule of thumb, your reward should always be more than your risk;
otherwise, you stand little chance of surviving as a trader. The SMR Take Profit (SMRTP) was
developed to determine how far a trade could move with or against you in one day.
When you use the SMRTP you will need to choose what time period you will be evaluating.
Usually, the last ten days are used; however, the best results are obtained by analyzing
different time periods in order to find common results. Once the time period is chosen, placing
the results on the chart will show you possible trading ranges for the current or next day. The
results show the minimum, average, and maximum daily ranges for the selected time period;
these values can be viewed in either market points or dollars. The placement of the SMRTP is
crucial in determining if and when you may want to take profit. For example, if you were
studying the markets at the end of the day, you would usually place the results at the close of
that day. You could then see what the potential outcomes are for the following day (e.g.
maximum day with you, minimum day against you, etc.) If you are using the SMRTP during
the day, you may want to use the intra-day high or low to place the results, assuming that the
high or low is potentially the high or low of the day.
The example here is Sept Natural Gas. If you had been trading the short-term momentum
indicator and caught the correction to the upside, you probably would be a little nervous
holding a very volatile, expensive market against the major trend. The SMRTP indicator shows
that Aug 17th daily range exceeds the maximum daily range for the time period of Aug 3rd to
Aug 16th (10 trading days). If you are having doubts about a trade, you should have no
problem taking profit near the maximum daily range; anything more is just greed and will hurt
you in the long run.
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