Trading, Entry, Exit and Targets Page 1 of 4

Maximum Profit Targets

This lesson we are going to work out the best way to take maximum
profits from a position long or short. Many traders know how to get into
a position but are often uncertain when they should get out.

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now we need a
logical target.

Don't worry if this sounds a little complicated it isn't. From the last
lesson you may remember that we calculated out retracement levels by
measuring the distance between point A and point B. All we are going
to do now is add another measurement called point C to get some
fibonacci expansion ratios.

We will eventually finish up with two targets. T1 and T2. We shall

discuss which one to choose later. The formula for the calculations
would look like this.
T1 = .618(B-A)+C
T2 = B-A+C

Let's assume an imaginary security called ABC.PTY. Point A shall be

189, Point B shall be 278 and point C shall be 245. It's in an up trend
and the first move (A to B) is 89 (278-189). It then pulls back to point
C. The distance between point B and point C is 33 (278-245). We can
now calculate some numbers.

http://www.tradeology.com/profittargets.html 1/4/2009
Trading, Entry, Exit and Targets Page 2 of 4

T1 = .618(278-189)+245 Target is 300

T2 = 278-189+245 Target is 334

The chart below is a 5-minute chart of the US dollar/ Canadian dollar

(USD/CAD) as you can see A is 1.4900, B is 1.4837 and C is 1.4863.
Therefore:
T1 = .618(1.4837-1.4900)+1.4863 Target is 1.4824
T2 = 1.4837-1.4900+1.4863 Target is 1.4800

In our next chart

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and C is 1.5782.
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T1 = .618(1.5859-
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T2 = 1.5859- HugeDiscounts.cc

1.5712+1.5782
Target is 1.5929

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Trading, Entry, Exit and Targets Page 3 of 4

As I mentioned earlier there are other expansion ratios but these are the
two I like to use. I find it very useful to keep an eye on the first target
(T1). If you are in an up trend and T1 is below resistance then I would
use that as a target. If T1 is above resistance then I would probably use
T2. The reverse is true for a down trend.

Good Trading

Best Regards
Mark McRae

Maximum Profit Targets

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Trading, Entry, Exit and Targets Page 4 of 4

Information, charts or examples contained in this lesson are for illustration and
educational purposes only. It should not be considered as advice or a recommendation
to buy or sell any security or financial instrument. We do not and cannot offer
investment advice. For further information please read our disclaimer.

http://www.tradeology.com/profittargets.html 1/4/2009