Finding a price target usually depends on what your trading style is. Not sure which trading strategy best suits you? Then this next section is for you! 101investing.com has created an overview of some common day trading strategies and how the concept of a price target factors into each one:
- Scalping: This popular strategy involves selling just after a trade becomes profitable. As you might imagine, the price target with scalping is fairly straightforward, it’s just after the stock attains profitability.
- Fading: Shorting a stock after a rapid upturn is known as fading. Traders who employ a fading strategy believe that: 1) a particular stock has been overbought, 2) that the early buyers have already started scalping, and 3) that some buyers will be scared away. This risky strategy can be very lucrative. The price target for a fading strategy is when buyers begin purchasing the stock again.
- Daily Pivots: This strategy attempts to capitalize on a stock’s daily volatility. The goal with this strategy is to buy a stock at its daily low and sell when it’s at its daily high. With this strategy, the price target becomes the stock’s next sign of a price reversal.
- Momentum: This strategy requires traders to focus on breaking news or identifying a trend in the market. Some momentum traders will buy on a trend until it shows signs of reversing. Other momentum traders will fade the price increase. The price target is when the momentum stops and trading volume begins to decrease.
There is a tremendous amount of skill and nuance involved in each one of these trading strategies.