How to Set Better Profit Targets in Trading

Trade Move Potential (TMP) is a strategy for setting realistic checkpoints in a trade, marking the first point where a reversal may occur. It’s not a strict exit target but a moment to consider actions like adjusting your stop loss, reducing position size, or holding if the trade still looks promising. TMP also helps you avoid impulsive exits.

Trade Move Potential (TMP) is a better alternative to far away targets. It’s the first point where you expect the market might turn against you. Instead of setting it as a place to exit, you use it to reassess and see if you should keep holding, adjust, or close out.

TMP also helps you avoid jumping out of trades too early and keeps you on track to make decisions based on what’s actually happening in the market.

What is TMP?

TMP is the first point where you might expect a reversal against the direction of your trade. Think of it as a specific price point where you anticipate it might be a turning point.

Often we see traders who set targets to give themselves a massive risk:reward, but this just isn’t realistic and doesn’t factor in all the potential reversal points before that. It’s usually just based on an arbitrary price point.

Using the worst-case scenario as a realistic target helps you judge the viability of a trade much more accurately. If your trade reaches this level, it’s also a logical point to consider taking action.

But why do we call it the Trade Move Potential, and not a target? Unlike a target, we don’t always close the trade at TMP.

If we always close our trades at TMP, that will cap the upside potential which we don’t want to do. Instead, once the price reaches the TMP, we will assess the next potential outcomes and make a decision based on that. The four main decisions we could make are:

Adjust the stop loss
Reduce our position size
Exit the trade
Do nothing

The TMP should be decided before you enter a trade and can be used to calculate your risk:reward. This way, you can already be planning what decisions you’re likely to make at TMP, and where the next decision points will be afterwards, like setting another TMP.

The Psychological Side of TMP

However, the TMP isn’t just about setting a target, it also sets a logical decision point to stop us interfering with a trade.

For example, it’s common for traders to feel the urge to close a trade as soon as they see a profit on the screen. But this urge to close the trade can often leave a lot of potential gains on the table, especially if you’re exiting trades at the first sign of a minor pullback. Having TMP as a set decision point can keep you from making those early exits which sabotage your trading.

You won’t have to constantly ask yourself, "Should I close it now?" because TMP has already set that guide for you.

Start Using TMP

In the end, TMP provides a realistic target without constantly second-guessing yourself. I’d recommend incorporating a TMP into your trading, rather than just setting far away targets.

Remember, your TMP should be based on the first point where the trade is likely to reverse against you. You’ll also need to factor in your trade time horizon, as the TMP should match the type of move you’re looking to trade.

For more information about time horizons, check out our article on What Are Time Frames and Time Horizons?

And next time you feel the urge to close a profitable trade too soon, remind yourself of the value of letting it reach TMP. It’s this kind of consistency, rather than just small wins, that leads to real success in the long run.

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