Knowing how long a trade may last has multiple benefits. Before taking a trade, write down or be aware of how long similar trades have typically taken before reaching a profitable exit, such as aprofit targetor trailing stop loss. Do this by looking at prior similar trade setups, or how much the price typically moves.
Here are some of the benefits of knowing how long a trade will last. It is not hard to do, so have an idea of how long a trade will last before taking it.
- Doing this makes sure you have considered the trade setup and know how the price has moved after prior similar trade setups, or how much the price is moving recently and overall. If you don’t have evidence the trade setup works, don’t trade.
- Knowing how long a trade lasts helps you stick to your trading plan. If you have a target of 20% and it has been taking the stock about 2-3 weeks to move 20% (give or take a few days), you don’t need to fret over the daily movements. It will take about two-three weeks for the trade to play out.
- While you are looking at how long a trade typically takes to play out, also note how the price typically moves on the path to the target. This can also help ease the mind. Note what you can expect during the trade. Pullbacks andfake-out movesmay be common. Note that they happened, but that more often than not the trade setup still produced a profit over many trades (if it didn’t, why are you trading it?). The more prepared you are for what to expect during a trade the better.
- While most of us know the price won’t instantly move to our target (or into a huge profit), the second after we enter a trade, most of us are hoping it will. By being aware of how long a trade may take, it eases the pressure and anxiety. If we know a day trade typically takes 5 minutes to reach our target it isn’t a problem if the trade gets off to a slow start and isn’t moving much. We know it will probably take 5 minutes.The person who doesn’t know how long their trades will last has to sweat out every trade, likely thinking something is wrong every second that they are in the trade…even if it’s only been five minutes (or possibly weeks in the case of a swing trader). Self-inflicted torture!
- Day trading can be hectic, especially on a busy day. Don’t fret over knowing exactly how long trades last. A general idea is fine. As a trade sets up we typically have a few minutes where we start to consider a possible entry and where we will place our stop loss and profit target. During those few minutes, we can look at prior price waves, briefly, and determine how far and fast they are running (are the waves getting bigger or smaller?). This may also help with determining if it is a worthwhile trade, and what type of reward:risk we should be considering.
- Part of the allure of trading is that it doesn’t need to take up our entire day. Most traders forget this and obsess over their charts constantly. You don’t have to. If you know a trade is going to take a month, you don’t need to check on that trade hourly or daily. Check it once a week. If you have a stop loss and profit target placed, there is nothing to do anyway. Let it play out. If you know a day trade will probably take 5 or 10 minutes to hit a target, why worry about every second and tick the price makes?
How long the trade may last doesn’t need to be an exact number, just a general idea. We can’t knowfor surehow long a trade will take, unless the trade has a timed exit**. But a general idea, or a range of values, is all we need.
**A timed exit means you exit at a certain time. Day traders may have a timed exit in that they exit trades at the end of the trading session or before a major news event (or some other relevant time to them). Some traders may wish to exit before the weekend, which is also a timed exit. A strategy may also have a timed exit. For example, a trader may have found that the price tends to run for three hours (or three minutes, or three weeks) after their entry, but then tends to reverse direction. They exit after being in the trade for three mins/hours/weeks.
The Price Action Stock Day Trading course shows you how to capitalize on daily movement within stocks. It covers what stocks to trade, how to find them, and how to capture multiple good reward:risk trades using patterns that repeat over and over.
How to Determine How Long a Trade Will Last
If you are trading a setup that hasn’t occurred on the chart in a while look at how the price is recently moving. Look at how long it typically takes the price to move the distance from your entry to your profit target.
If you are striving to make 300 pips on a forex trade, how long does it typically take the price to move 300 pips? Look for multiple examples to give yourself a range of values. Maybe one time it took a week, another time it took three days, and another time it took two weeks. More than likely that trade is going ot take a week or two. But maybe, if there is a sharp move, it will be quicker.
The same concept would apply whether swing trading forex, swing trading, or day trading stocks.
Here’s a swing trading example. After establishing a profit target of about 16%, we can look back in time and see how long it typically takes the price to move 16% out of similar setups. Prior moves took 8-11 price bars. This provides a rough estimate, letting us know we will probably be in this trade for at least a week or two. The trade played out and hit the target in 10 trading days. It isn’t always so accurate, but can still be helpful.
Charts from.
Here’s a day trading example. The price is moving about 1% before it has a pretty good pullback or stalls. You could go for a bigger target if you don’t mind holding through those pullbacks (which the price has been showing us), or you could set a profit target around 1% and get out before the pullback.
Now that you understand this, you can look at how the price is moving to help set reasonable profit targets. If the price has only been moving 15% and then stalling out or dropping, don’t pick a profit target more than 15%! Take profit at 10% to 12%.
If day trading, if the price is only moving 8 pips on a price wave, or $0.50, then your target shouldn’t be more than that. The price is showing you what to expect. Of course, volatility does change, but as long as you get a good high-probability risk/reward trade, that is all that matters.
This is how I set profit targets when swing trading.
The more you know about the trade you are undertaking, including how long it may take and the whacky price moves that may occur between your entry and exit (based on prior setups), the better off you will be.
If you are prepared, you are less likely to start doubting yourself. You are more likely to follow your plan and maintain your discipline. Your patience will appear to improve because you already know how long it will likely take to get your reward.
MyComplete Stock Swing Trading Coursefocuses on 5 patterns that tend to occur in strong stocks right before an explosive move.
Learn how to read market conditions, how to find potentially explosive trades, where to get in and get out, how to fine-tune trade selection, and how to manage risk.
By Cory Mitchell, CMT
Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.
