Whether you’re new to trading or more experienced, there are a few price target strategies that are essential to know.
In this blog, we take a closer look at scalping, momentum and daily pivots - as well as our tips on how to decide if each strategy is for you!
What is scalping?
The overview: scalping is one of the most popular price target strategies. It involves selling almost immediately after a trade becomes profitable. The price target is whatever figure that translates into ‘you’ve made profit’.
A forex scalper looks for a large number of trades for a small profit each time, and scalpers like to try to scalp between five and ten pips from each trade they make and to repeat the process over throughout the day.
What are the pros of scalping?
Before you begin trading, it’s important to weigh up the pros and cons of different strategies to find out which is right for you.
Here are some of the pros of scalping:
- It doesn’t require much knowledge of the markets, so can be used by a trader at any level, including newcomers
- You won’t need to wait for a trade to close: in scalping, positions are generally held for a very brief timeframe, and that allows for a lower chance of reversals
What are the cons of scalping?
Here are some of the negatives of scalping:
- Unlike longer positions, one trading loss can obliterate any gains from other several successful trades
- The profits are smaller on each trade, so it can be harder to make big profits
How can you tell if scalping is right for you?
Here are some key indicators that scalping may be right for you:
- You like fast, exciting trading
- You’re fairly impatient - you like short, quick trades
- You can think on your feet
- You like the idea of staying focused for several hours at a time
However, scalping may not be for you if:
- You get stressed by fast trading
- You’re a patient person who likes taking your time over trades
- You’re likely to make mistakes if you make decisions quickly
- You would rather make fewer trades with bigger profits
What is momentum trading?
Put simply, this strategy involves trading on news releases or finding strong trending moves supported by high volume. One type of momentum trader will buy on news releases and ride a trend until it exhibits signs of reversal. The other type will fade the price surge. Here, the price target is when the volume begins to decrease.
What are the pros of momentum trading?
Here are the pros of momentum trading:
- It’s very fast-paced so perfect for traders wanting to keep engaged!
- Measurements of momentum can be used in both the short and long term, so are useful in all types of trading strategies
What are the cons of momentum trading?
Like any trading strategy, momentum can be tricky. Here are some pitfalls to consider:
- Momentum projections usually involve calculations with past price trends - so may not always be completely accurate
- Price can change at any given moment, so it will require you to keep on your toes! This strategy requires setting stop-losses to safeguard against any price reversals
How can you tell if momentum is right for you?
Momentum trading may be right for you if:
- You like fundamental analysis
- You usually keep up with the news
- You like to keep on your toes
- You’re good at reacting quickly to the markets
It might not be the right strategy for you if:
- You prefer technical to fundamental analysis
- You don’t often read the news
- You prefer slower trading
- You’re not as quick as you’d like to be in reacting to the markets
What is daily pivoting?
This strategy involves profiting from a stock's daily volatility. This is done by attempting to buy at the low of the day and sell at the high of the day. Here, the price target is simply at the next sign of a reversal.
Pivot points are used for different reasons, depending on whether you’re a range trader or a breakout trader:
- Range-bound traders use pivot points to identify reversal points. They see pivot points as areas where they can place their buy or sell orders.
- Breakout forex traders use pivot points to recognize key levels that need to be broken for a move to be classified as a real deal breakout.
What are the pros of daily pivots?
These are the positive aspects of daily pivoting:
- It’s a relatively simple style of trading based on simple calculation, so is a good strategy for traders of all levels
- Pivot points use short time frames - one to fifteen minutes - making them a trading favourite
- With pivot points you can quickly identify when you’re in a losing trade - for example, if you’re going long in a trade on a break of one of the resistance levels, and the stock retreats below this level - you are likely in a losing trade
What are the cons of daily pivots?
These are the negatives of daily pivoting:
- As with all indicators, there’s no assurance the price will stop at, reverse at, or even reach the pivot point levels created on the chart, and sometimes the price will move back and forth through a level - so pivot point trading should be used alongside other indicators too
- Don’t get consumed by the day’s pivot points only! Make sure you look at the prior days’ levels to get a clear picture of support and resistance levels
How can you tell if the daily pivot strategy is right for you?
Daily pivoting may be the right strategy for you if:
- You like relative simplicity when trading
- You like looking at shorter time frames
- You like quickly knowing when you’re in a losing trade
However, pivots may not be for you if:
- You don’t mind things getting a little complicated when trading
- You don’t mind a little uncertainty when trading
- You like looking at longer time frames