When trading commodity futures, stocks, or currencies traders are wise to set trading targets and stop losses with each and every trade. No matter how well you understand the market you are trading, it is never possible to accurately anticipate market movements every single time you place a trade. So, you ask, how do I set the target and stop loss in intraday trading? Start by deciding to what degree you want to help minimize losses for your day trades.

Understand the Concept of “Stop Loss” in Intraday Trading

When day trading the two issues of risk and opportunity always need to be balanced, one versus the other. Traders use stop-losses to limit their losses when a security makes an unexpected move. Doing this means that you do not need to spend every second watching price movements. A problem with using a stop loss is that short term fluctuations can trigger a stop loss and do it just before that trade would have become very profitable. Thus, a day trader needs to assess the risk of losing out on opportunity as well as the risk of major loss.

Analyze the Market Conditions and Identify an Entry Point

Whether you are investing for the long term or scalping profits minute by minute, the idea is to buy low and sell high. A skill that day traders needs to learn is to be able to analyze market conditions and identify an entry point that has the best chance of resulting in a profit. For day trading, technical indicators are better for this purpose than the analysis of fundamentals. Are you in the middle of a trend that is likely to continue? Are you close to a support or resistance level? When you have a good idea of this situation you will be better able to choose an entry point and then stop-loss and target levels.

Set a Target Price and Decide on a Stop Loss Level

After you set a target price and decide on a stop loss level you can just wait for a trade to work itself out one way or the other. But, what about when the market shows promise of heading much higher? In such a situation traders will watch the market and reset their target and stop loss level with each upward movement of the market. For this to work in a volatile market the trader needs to have target and stop loss levels set with enough room for predictable fluctuations not to take them out of the trade before they have a chance to make their adjustments.

Use Charting Software to Plot Your Proposed Trades

Successful day traders exercise discipline in choosing, entering, managing, and exiting their trades. They follow set parameters for setting up their trades. These parameters are based on carefully thought out trading plans. This sort of rules-based trading is amenable to a degree of automation. Thus, you can use software to plot your proposed trades. The software should not be doing your thinking for you but it can do the repetitive calculations more quickly that you could.

Use Technical Indicators to Set a Stronger Stop Loss

Setting a target or a stop loss should not be a matter of guesswork. Successful day traders use technical indicators to set a stronger stop loss and target for taking a profit than they might get by just using their own intuition. By using discipline in always following the cue of technical indicators, day traders can expect reliable results in their trading. They can also more accurately analyze the results of their strategy and make changes as appropriate.

Monitor Your Trades and Adjust as Necessary to Minimize Losses

In war they say that no plan of attack survives first contact with the enemy. Success comes from being able to think on one’s feet and adapt. This same thinking is applicable to day trading and setting price targets and stop loss levels. As the degree of volatility in the market varies, a day trader needs to decide whether they will opt for less risk or more profit potential. As the market moves up and down a trader who monitors their active trades will be able to adjust their stop loss and price targets to optimize profits while minimizing risk.