Forecasting Target Prices | Podcast Episode #375

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Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

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Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

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You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock market.

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And with today’s episode we’re gonna talk about forecasting target prices. Done some episodes on this in the past and of various sorts.

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Usually it’s attacking 1 aspect or the other of target price setting for when it comes to your swing trades because I talk a lot about reward and risk.

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You know the reward is the potential target or the potential price that you think you can get out of a trade.

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The risk is the potential downside to a trade, what you think you could possibly lose off of it. And that’s we’re essentially the risk side, especially that’s where you set your stop losses.

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But on the target side it’s a little bit different. So this question here, and I always encourage people who subscribe to my services to always send me questions because I always, you know, make sure that they get their questions on air as long as it’s not about accounting or something, because I’m not good at that stuff.

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But swing trading, I love questions about that. And for today’s episode, I’m going to give this person a good Florida redneck name of Twila, the name I haven’t used before.

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And for those wondering, why do I give a Florida redneck name is because I don’t want to use people’s real identity. The Internet’s forever, right?

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So the last thing you want to do is put their name out there. And then all of a sudden they wish that their name wasn’t out there.

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So Twila is the name we’re going with here. And I try to keep it to Florida redneck themes unless otherwise requested.

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But Twila writes Hi Ryan, Hope you are well. I was just messaging to see if you could do a podcast of determining target prices.

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I have been having reasonably good success in my trades recently. However, I want to improve my trade plan and I am struggling with determining a good take profit sell target going into a trade.

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So I find myself chasing price sometimes or selling too early in fear of it dropping.

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Many thanks Twila. So one of the things that I always say is that targets are forecasts.

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There’s no guarantee that a stock is gonna get to our target price and that’s one of the conundrums of trading now to the risk side.

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We have to place the stop losses because if it does hit the the stop loss, we don’t want to be in it.

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We don’t want it to hit the risk to begin with. But if it does hit it, we want to be out of it.

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But to the target side, it becomes more of a OK, we hit my target price, do I get completely out or do I keep holding on or do I just stick to the original plan of selling out?

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And no matter what happens from here or how I feel about the stock, I get completely out and whatever happens, happens.

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Well, that’s good and all, but one of the things that I talk about is 1 planning your trade, 2 managing the risk, and three, letting the profits take care of themselves.

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Now that three, letting the profits take care of themselves also means that you let your winners run, and that means beyond the target price too.

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Now, that doesn’t mean I don’t take profits along the way. Usually I’m taking profits along the way before it even gets to the target price.

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But at the target price, if I haven’t taken any profits yet, probably a very good likelihood I’m going to take profits there because that makes a lot of sense.

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Target price hit path of least resistance to the next layer of resistance was hit. I’m going to take some profits, but I don’t like to just go ahead and sell my position out.

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completely right there. Usually by the time I hit the target price, I’m looking to get down into my ride or die position,

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the position to where I’m willing to have a much wider stop loss on the current position. Let’s say for instance, I get into a stock at $100, and this is just an example, and I have a stop loss at $96.00 and I have a target price at 110, maybe at 105.

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I take a third off, 110, I get to my target price, then I’m taking another third off.

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At this point I’m left with 1/3 of a position, Maybe. Sometimes it’s a quarter of a position, but that’s my ride or die.

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That’s the one that I’m willing to have a little bit wider of a stop loss. When I went into the trade originally it was a 4% stop loss at 96.

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My entry price was at 100 when I’m getting to 110. I may still have my original stop loss in place for that final third at 96, but more than likely

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I’ll have it increased some, probably around 105 or something. But that’s bigger than the 4% stop loss I started off with.

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Why can I do that? Because I’m dealing with a smaller position size.

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I’ve got most of the profits already locked in with 2/3 of the position off the table, so I can have a wider stop loss.

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I can have a greater risk tolerance because now what I’m wanting to see is, OK, let’s give it a little, little whittable room.

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Let’s see if this thing can keep moving. And some of my best trades have happened off of that final third.

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It’ll go up. I’ve had some stocks that will go up 60 or 70% off of that final third.

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Now, do I really want to be limiting myself to a target price when there was that kind of opportunity out there?

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No. Do I go into the trade expecting to get 60% off of a trade?

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No, I’d never go into a trade expecting that much, actually. But when it does happen, I want to have some skin in the game to be able to maximize that profit

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opportunity. And so one of the things that I think a lot of people, and I’ve talked about it a lot on the podcast that I think really short changed themselves and is that they go all in at the entry, which is fine.

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I go completely full position at my entry price or trigger price, whatever you want to call it.

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And then I get completely out. If my stop loss is hit or if the target gets hit, I’m probably going to take some profits, but I’m

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going to let the rest of it run. Because in the end targets, like I said in the beginning of the podcast, targets are forecast.

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They’re not concrete. It’s not a all or nothing thing.

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Sometimes you reach your target price, other times you don’t, but you’re still profitable on the trade and you might have a target price.

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Like I said, going back to the example of entry price of 100, stop loss at 96, target price of 110. If all of a sudden you get this breakouts from 100 to 105 and it just starts to sit there a little

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bit and then it starts to break down at some and all of a sudden you’re at 103 and it it’s very obvious that everything is falling apart.

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It makes sense not to wait for 110 to trigger because that might not ever happen.

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And so you get out at 103, you make 3% on the trade, there’s nothing wrong with that and you move to

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on to the next trade. So targets are not something that you have to set in stone.

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It’s like it’s 110 or 96 and nothing in between. It’s either I get stopped out at 96 or I hit my target price at 1:10.

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If you go into that, most of the time you’re going to get stopped out because it’s it’s easier for a stock to go from 100 to 96 than it is to go from 100 to 110.

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You’re talking about much more ground it has to cover. So it just by a sheer probability standpoint, it’s much easier to go 4% than it is to go 10%.

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And so when you get a move in a stock and it doesn’t quite reach your target, things are starting to change.

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You’re recognizing that you want to either have your stop loss moved up some so that it naturally takes itself out of the trade or go ahead and just close out the position because you can see the

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tides turning and maybe you only get her three or 4% on the trade and that’s OK, you set out because there was an opportunity to go to to 110, but that’s not always going to be realized.

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And on the flip side, you shortchange yourself when you completely focus on that target price and don’t give yourself a little bit of a position leftover when you do hit that target price for the

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stock to keep going higher. Let the winners run wild.

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That’s what I always talk about. Cut your winner short, lose fast, win slow.

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The only way you win slow is by keeping that last final position to see how far it’s willing to go beyond that target price.

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And why do I take profits before I get to the target price? Because I recognize all the time that stocks are not going to reach their target price.

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That’s just a fact of trading. And if I can preserve some of the that capital in a profitable way before it turns around and goes

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back to hitting my stop loss or just mellowing out somewhere around break even or slightly higher, then I wanna do that.

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One thing I’d also tell you to do is check out swingtradingthestockmarket.com. Yes, this is a plug for the services related to this podcast swing trading. the-stockmarket.com is

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gonna give you all of my stock market research each and every day. That’s going to include daily watch lists of stocks that I’m looking at the charts that come with

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them. Plus I’m gonna do trade reviews on those charts towards the end of the day.

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On top of that, I’m doing big tech updates and I’m also doing overall stock market updates too. So check that out.

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swingtradingthestockmarket.com. Seriously.

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The best value out there on the web, OK, How do I determine target prices? This is the other question we talked about the fact that they’re not set in stone.

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This is not a follow at all costs kind of thing. Similar to the stop losses are where if you hit your stop loss, you’re out of the trade.

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OK, that’s without the bait. Target prices are much different.

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They’re not set in stone. So how do I determine them?

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It’s not that hard, actually. It’s just using some simple technical analysis.

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Usually I’m looking for different price levels. I’m looking for declining trend lines.

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I’m looking for areas on the chart where there’s heavy volume. If you go volume by price on your charts, you can see where there’s a lot of heavy volume and

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usually there’s some price resistance as well right there just from a technical standpoint. And you can spot where a lot of selling has taken place in the past.

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So what I want to look for is a stock. When I get into it, I don’t want to see myself getting into a stock at 100 with a stop loss at 96.

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And then there’s a layer of resistance at 102-1031 O 410-5106. There’s not a lot of least resistance there.

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It’s very heavy. It’s going to be very difficult.

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So no matter how good the setup is from a risk standpoint, I don’t want to get into something that I’m just going to be battling resistance with the entire time.

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It makes zero sense. So what I want to see is that there’s room to run, that there’s like some gaps to run into or

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there’s just not a lot of price level resistance overhead, there’s no declining trend lines that it has to fight through that it’s been rejected that in the past.

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I don’t want to see that kind of stuff. So what I want to see is a path of least resistance.

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How far can it go before it actually starts to run into some major levels of resistance or layers of resistance?

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If I’m getting it at 100 and my stop loss is at 96, but then when I look at the charts, I’m seeing that there’s not a lot of resistance until 109 or 110 or 111.

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OK, then we’re starting to talk about scenarios that are more than two to one for the reward to risk return.

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And then if I get into the trade in, it turns out OK, it’s not gonna hit that. It got up to 105 and it started petering out.

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Then I’ll go ahead and close out the trade or take some partial profits and see how well the remaining position does, see if it can finally get its act together and start to push higher.

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And if it doesn’t, then I’ll close out the last half and it doesn’t have to hit the target in order for me to do that.

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It’s just simple common sense when you’re looking at the charts and things are starting to sour. When you start to see the market sour or the sector or the industry start to sour or the chart

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itself start to sour, then I decide I wanted to go ahead and get out. And I’m bouncing around a little bit here.

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But I wanna go back to what I said a little bit ago about letting your positions run beyond target prices and the most defining trades in your portfolio each year.

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The ones that have the biggest impact are the ones that come from that final third of a position or final quarter of a position.

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Just running wild and going way beyond what you ever expected when you first got into the trade and letting it run wild, letting that winner run as far as that price will take it.

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Those are the ones that have the biggest impact on your portfolio and it’s not because you had a full position.

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Often times it’s because it’s that 1/3 of a position that because you had taken so much risk off the table, you’re in a much more comfortable position from an emotional standpoint to manage that trade.

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Because you know it would be very difficult for you to actually lose trade because you’ve already taken 2/3 or 75% of your position off the table.

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So being able to have a little bit wider of a stock loss, being able to have a clear mind and letting that stock run for a while can make a huge difference in your portfolio.

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And once I’m in the trade, I talked about how I’ll take some profits at the target price, but once in the trade, I’m very much less concerned about the actual target price.

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I’ll glance at it from time to time if I forget it what that actual number was. But once I’m in the trade, I’m much more concerned with actually managing the trade, manage the

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trade, looking for where it makes sense to take profits. Maybe that will be at a target price, if I hadn’t taken much at that point.

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Because usually at that target price there’s a clear level of resistance that we want to be mindful of.

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And so when it reaches it, it makes obvious sense to start taking some profits there, if I hadn’t done so already.

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And if I have taken profits, it’s still OK to maybe take another third of the position off. But like I said, I’m more concerned about the trade management than I am sticking to a predetermined

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target price. I mean, think about Wall Street every day.

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They’re changing their price targets on something. They can’t hardly agree on anything.

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They’re all over the place. Even when the stock’s going down, there’s still raising target prices.

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And if they’re not following their target prices, you know that they act like a set in concrete when they get into it anyways.

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If they’re not following that, it would make sense why we’re probably not gonna be following it either, because if a stock performs beyond our expectations, we want it to keep performing as long

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as it wants. I mean, the best thing that we can say as traders is like, man, I was wrong about how good the stock was.

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If you’re wrong about that, that’s a good thing.

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I hope I’m wrong about the target price every time and it just blows past it each and every trade that I make.

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That’s what I like to see happen. Is that realistic?

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No. But don’t get hung up on the target price.

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As thinking to yourself, okay, I’ve reached target price. I gotta get completely out of the trade.

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Not what I’m saying. I’m just trying to say that target prices, they mean very much less once I’m in the trade than

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before I was in the trade. Because before I’m in the trade, I’m looking at it from a reward risk standpoint of whether or not

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this is a trade worth getting into afterwards. I’m already into it, so the target price doesn’t mean as much until I reach it.

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And I might take a sum of my position off the table, but I have no problem letting the stock run well beyond the target price.

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So in summary, I encourage people to set target prices before they get into the trade. That’s gonna help you determine your reward risk ratio for the trade.

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But once you’re into the trade, don’t get too worked up about following it to AT saying to yourself, OK, I hit the target price.

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I’m all out. No.

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First of all, you probably should be taking some profits along the way. But once you get to that target price, take it down to a level that emotionally you’re comfortable

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with, psychologically you’re OK with, and then let the rest run wild because it’s that final third that’s really gonna make a huge difference in the portfolio on your traits.

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If you enjoyed this episode, I would encourage you to leave me a 5 star review. Whether you listen to me on Apple or Spotify or iHeartRadio or all the other ones that are out

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there. Amazon, Google, I think I’m on all of them.

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Leave me a review. I do appreciate them.

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I do read them and keep sending me your questions. ryan@shareplanner.com.

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Guys, I need your questions. I like to hear from you guys.

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I don’t think enough of you guys send me questions for the number of people that listen to the podcast.

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So if you’re on the sidelines saying, man, I wish Ryan would answer this question, just send me the e-mail. ryan@shareplanner.com.

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I can assure you I’ll get the e-mail and I’ll read it and I’ll more than likely make a podcast episode about it.

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Unless something about taxes and accounting, which I don’t really know much about.

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So shoot me your emails. Check out swingtradingthestockmarket.com.

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Thank you. God bless.

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If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.