In this latest installment of trading exits, I want to cover another simple

way to place targets to exit your trades in profit.

We all know that markets travel in waves called impulsive and corrective waves. Impulse moves are with the

trend and the corrective move is counter to the trend and is also called

a pullback.

Generally, I prefer to enter every trade during the corrective wave in the

direction of the overall trend or the impulse waves. It is a bit of an art form as you are entering the trade

when the market has yet to confirm a return to an impulse move.

The problem is that when you wait for too much confirmation, the trade is well underway and you now have a

larger stop which equals a lower position size.

The good thing is that we can use the prior impulse move to estimate how

far the market may travel before entering another corrective wave.

We call this a measured move

We can actually write that as A2B=C2D which simply means that one waves

equals the other.

Let's use the same trade we've been using in all of these trading exits posts to keep things fair and compare apples

to apples.

On the next page, you can see I have drawn a trend line from what I

determine to be the start of the impulse leg or the A2B move which occurs before the corrective move.

The line is then projected from the lowest low of the corrective move and projected upwards in the direction of

the probable impulse wave.

As you can see, price rallys fairly strongly right up into the target which is 180 pips away from my trade entry.

Price exceeded the projection by about 50 pips and then reversed 170

pips to the downside.

Let's finish off this chart series by measuring the previous impulse leg that took us to the trade target and

project that from the 170 pip corrective low.

The measured impulse leg was 272 pips and as you can see, price busted

through that target and eventually travelled 70 pip beyond and then

reversed.

Let's not stop here.

How about we measure the reversal leg from the last chart and project

from a corrective area that sets up a short trade.

As you can see, the A2B move measures to the pip the end of the

C2D move at 162 pips.

I certainly don't want you to think this is foolproof as this chart shows. I took

the previous ABCD and made it one large impulse move and projected from the larger corrective move.

Price fell short about 40 pips but still served up about 220 pips before price action was giving signs of an issue with

the move.

This is just another tool that you can experiment with to ensure you are

able to have an objective target for any trade that you enter during the

corrective phase.

With a sharp eye and experience with price action, you may be able to add

some discrection and bank the majority of the move before the

retrace begins.