In Day Trading, What is a Profit Target and Stop Loss?

A profit target is the “profit goal” for a specific order or orders. A stop loss is the amount of acceptable loss or risk for a specific order or orders. Depending on a trader’s account and means of trading (i.e., day trading software), profit targets and stop losses are typically placed to maximize potential profit while minimizing potential risk. There are no guarantees a trade will reach either the profit target or stop loss. A given market/instrument may approach the profit target, yet turn “on a dime” and reverse in the other direction to meet the stop loss. Thusly, the transaction is over and the order/trade results in a loss. Likewise, a profitable trade occurs when price reaches the profit target. In some cases, it is necessary for the price value to “pass through” or exceed the profit target in order for the trade/order to conclude with profit. Different order types exist; each for a specific purpose with related quirks.

Scalping means many small trades per day, in and out, to hopefully rack up a large amount. Is it similar to going fishing with many poles in the water? Not really, because the trading equivalent of that analogy would have you looking into many markets at the same time. A morning of scalping the E-mini the way it’s taught at DayTradeToWin may have you “net” six or so winners, but in 2.5 hours could you hope to catch six fish? Depends on where you’re fishing, the time of year, climate, ecology, whether the pond was stocked, the number of other people fishing, your particular choice of tackle, etc. Fortunately, fewer variables are involved with trading, but it is still a game of being in the right place at the right time and being ready to take action.

The particular scalping method in use here is DayTradeToWin’s Trade Scalper. In this example, John Paul, the founder of DayTradeToWin, is going for a profit target 1.5 points (six ticks). Because the E-mini is worth $12.50 per tick and there are six ticks total for the profit target, multiplied, this means a profit target of $75. This isn’t too bad for a few minutes worth of work. But for people who want more money, how can they increase the profit? By trading more contracts. Yes, if their trading account funding situation allows, they can “stack on” more contracts per each trade. Of course, this will yield a greater loss should the track go that way.

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