Recently, I've heard from a number of traders regarding the challenge of establishing effective targets for their trades. What has been happening in most of these situations is that a trade will go the trader's way and be profitable. That leads the trader to hope for further gains and sometimes even add to the position. At that point, the trade reverses and leaves the trader with no gain or even a loss. The frustration caused by such "choppy" market conditions can then fuel subsequent poor decisions and excessive losses.
This is one of those situations in which the best psychological strategy is also the best trading strategy. It is imperative to study the markets and instruments you're trading and identify clearly how far moves are likely to go in various regimes of volume and volatility. If you're trading a stock index, such as the SPY ETF or the ES futures, the market VIX will be highly correlated with the average size of moves on any time frame. Similarly, the volume of the instrument will be quite correlated with the size of market moves. If SPY is trading an average of, say, 70 million shares per day, you can do very basic research and recognize that daily moves of much more than 1% will be difficult to achieve with such volume. For a day trader, if today's volume is not significantly greater than recent volume and you get a breakout move of over half a percent in a 12 VIX market, you know that the conditional probability of the move going much further in your favor is pretty low. If the VIX was greater than 20 and volume was exceeding 100 million shares, you'd be on firmer ground holding for further gains.
One thing I found very helpful in my own trading is to know what my anticipated holding period is for a trade and to know, precisely, how much directional movement can be expected during that period across different segments of the market day. An expected holding period of an hour would lead to larger moves in stocks during early morning hours, for example, than at midday. By studying the size of market moves for given holding periods, levels of volume and volatility, and for time of day, I can set rational, reasonable targets for profits. That makes the exit process automatic, and it avoids the major pitfall of making execution decisions in the heat of battle.
The key is making trading planned and not reactive. Once you have a plan, you can mentally rehearse it and base your exit on a reasonable goal, not a wish. Trading becomes emotional when we act on hopes and fears and not hard information. The trade exit should take into account what the market is typically giving you; expecting more is perfectionism and a setup for frustration.
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