Breakout Targets For Day Traders
How do traders come up with reasonable price targets
when trading intraday breakouts?
How do you come up with reasonable targets when trading a breakout? Targets are easy enough when you’re taking an A > B trade. Buy at support, sell at resistance. Maybe you hold a slither for a bigger move.
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That’s all very nice, but what targets can we use for breakouts into fresh territory? We can trail a stop sure. But the nature of a trailer means we will give back some unrealised.
What if we want to place a limit order at an extended target? What’s a good way to frame the trade then?
Enter the daily ADR or ATR. Smoke, lights, sequin suit… ADR is the Average Daily Range. Or looking at it another way. The expected and typical range for a day.
Currently, in the Nasdaq, it’s $200 over the 24-hour session
DOW it’s 340pts
(When using a 10-period ADR)
So from a target perspective, if we believe we have the direction right and the expected range has not been reached yet, then we could reasonably use the extreme of that expected range as a price target.
Phew, that’s a mouthful…
Let’s unpack with some visuals. We had a good example on the DOW recently.
- Take your 10-period ADR = 344
- Anchor the top of the range to the intraday high
- Now you have a price target for the downside
Now imagine you are coming into the trading day, you don’t know what’s going to happen.
But perhaps you have a short thesis based on recent price action. Maybe you want to take the prior day‘s low break, or be positioned ahead of that.
What’s a good target? Mr ADR
That’s the range we’ve been doing recently, and if this day is ‘normal’ we can expect that range too.
(Of course, sometimes we get more, sometimes we get less, this is a game of probabilities remember.)
You take the short. Hold through the breakout and it hits the daily ADR. The probabilities are on your side, making it easier to sit tight letting the trade work for you.
Is it foolproof? No.
It can help you structure your trade in a clearer manner and help you feel comfortable holding the trade longer.
Try it out. Happy ADRing… (that sounded better in my head)