1. Entry - On any condition e.g. Bullish Engulfing and its breakout
2. SL - at low or high with maintaining a risk reward of minimum 1:2 If Risk Reward is less than 1:2 entry should not be taken as for a trader Risk management and capital protection should be first priority and making profits should be less prioritized
3. TP : Take profit is never related with Entry or TP, Its based on market behavior. All methods which derives fixed TP, usually fails with high chances making it less reliable for scalping
We can understand point 1 and 2. Taking entries is not a major task where you need to use your mind, but at booking profit you need to do major analysis about market behavior
My note to all traders who are using a system which has fixed TP should avoid using the system if its not giving high accuracy because you need to understand TP is never linked with Entry logic.
It does not matter whatever Entry logic you have, Your Take Profit level depends on market behavior only because market behavior is what most of people do not study.
They wish to have an Expert advisor with set and forget methods which never works and very unreliable.
If your EA is following market behavior and not sitting idle after entry then your EA may be very problematic EA which will not have very high win rate.
What traders expect
applying fibonacci to swing you can see its exactly retracing from 2.618 fibonacci level
but trend like this happens 25% time only. Here is what happens when you initiate a trade
what you expect in historical back test usually do not happen when you initiate a trade. This is true for every strategy a learner may find
If you study what is the difference between previous chart and this chart?
Its the market action. In previous chart you can see price went to 2.618 level smoothly
but in the later chart, you can see price retraced back to almost 0% area of fibonacci to create fear among those who were holding a buy side position.
This made them change their decision of booking profit from level 2.618 to level 1.618
Luckily this time price also touched 2.618 but its no logic. Because since traders already booked profit at 1.618 level, price did not react on level 2.618 as I marked on screenshot
Now if you plan to do reversal trading on level 2.618 your Stop loss will hit. I hope you know the reason now.
Now you may also notice the low was broken so if you apply fibo correctly you can see the reaction at 2.618 level
So in this blog you learn that how psychology is also important for traders to understand and change their take profit level based on market behavior. Market will have no meaning if people do not participate and take entry and sit idle waiting for their take profit. This may be true for investors but intraday scalpers need to act based on market behavior on lower timeframe and should use variable take profit levels based on what market do after your entry.
