Target (TGT), another retailer announced earnings and beat their estimate. EPS was 92c vrs 72c LY. TGT had a 1.7% same store sales increase. Also notable in their announcement was they bought back $907mil of the stock. Deere (DE) also announced and beat their estimate by 22c.
Companies are cutting expenses and controlling costs for earnings performance. Both target and Deere opened up down after there announcements, though TGT rallied back in late morning. It is just a tough environment.
In this market environment it is much harder to set targets on positions. Along with setting targets ample risk to reward must be understood, as well as money management. An article explaining ‘risk to reward’ and ‘money management’ is in the recommended section. Some comments on setting targets is below.
On the charts the S&P 500 and NASDAQ had similar days, which is far more common that not. Both gaped below the close of yesterday at the open but rallied to yesterdays high. Neither could break and hold above yesterdays trade though, but closed up from yesterdays close. To continue up to the highs where this sharp pullback came from prices are going to have to get through this area. While there is clear air above today’s highs for this to move up there is resistance now in the form of a double top, and prices will have to get through both the 20MA and the 200 MA which are flat and sideways, showing in another way the sideways pattern we are in.
Of all the elements that are put together to place a trade the target is by far the hardest to determine and manage to. The others are pretty much straightforward. (The entry and initial stop loss). When folks begin to trade, most say that target setting is the element that leaves them baffled. And when you think about it should, because while we have a high degree of control over the entry price we buy or short at, and also over where and when to exit with a stop loss, we have absolutely no control over how far the price moves or what the stock does after we get in.
Let’s begin by stating that price targets for longs are usually found at some resistance and for shorts at some support. But the usual doubt that haunts us lies in the fact that we have no control on whether prices will move after entry maybe halfway to the target, maybe reach the target, or whether it will slice right through the target and go beyond. That lack of control makes many traders nervous. The truth is, we don’t need to know whether such and such level can be reached or surpassed. All we need to do is determine a target that seems attainable and then apply a management technique that will help us maximize the results of the winning trades and minimize the results of the losing trades.
This probably sounds too simple, and in a way it is really simple. Trade management is as important as the initial set up and entry is. Some where between the entry and target is where many mistakes are made. Emotional thoughts can interfere with sound trade and money management principles.
A proper risk to reward must be present to take the trade in the first place but do you let emotion step in a sell too early when there is a small profit? Many traders do this to create a god batting average but when they lose they lose big in other trades and have net trading losses.
Trade with a plan.