Targets
Aim where price is likely to stall, then check the ratio. · 6 min
Decide first
A target turns a plan into a number: reward to risk, measured in R. It should come from the chart, then be checked against the arithmetic, not the other way round.
Look for where price is likely to stall: the last swing high above a long, the last swing low below a short. A target just in front of that level is reached more often than one just past it. If the structure only allows 0.8R, the trade needs a win rate above 56% to pay, which is a reason to pass, not to move the target further out.
Far targets are not free. They lower the win rate you need, but they also lower the win rate you get, because price reaches far targets less often. The trade-off between the two is the subject of module B2.
Plan this chart
Simulated data · not real prices- Entry
- Market order at 105.92
- Risk per unit
- 1.07 (1.73 ATR)
- Reward to risk
- 2.00R
- Break-even win rate
- 33.3%
- Size at 1% of $25,000
- 233 units, $249 at risk
Fills at the next open, plus one tick of slippage.
Coach
- Note: The target lies beyond the resistance at 106.62, which price has to break first. A target just before it is reached more often.
Worked example: target from structure
- Long at 50.00, stop 48.00: 1R = 2.00.
- Swing high at 53.50. Target one tick before it: 53.49, rounded to 53.40 for a margin.
- Reward 3.40 ÷ risk 2.00 = 1.7R.
- Break-even win rate 1 ÷ 2.7 = 37%.
- A 2R target at 54.00 needs 33%, but sits beyond the level price has to break.
Common mistake: the target chosen to make the ratio look good
Moving the target out until the plan shows 3R does not change where the market is likely to stall; it only changes the number on the plan. The ratio is a result of a sensible target, never the reason for one.
Check yourself
- Your target pays 3R. What win rate do you need just to break even, before costs?
- Long at 33.51, stop 32.48, target at 2R. You exit early at 33.82. Result?
- Long at 90.16, stop 87.54. Where is a 2.5R target?
Closing round
Set every target just before the last swing high and write its R. Pass on any trade whose structure offers less than 1R.
Play the round in the simulator →The simulator's markets are generated, not real prices; the round practises the arithmetic, it does not predict anything.
Further reading: Tharp, Trade Your Way to Financial Freedom. The lesson teaches the idea in its own words and exercises.