OptiNod Academy
Profit targets — Look at target size and hit rate together
A larger target does not always lead to a higher average result. This article compares fixed-R, ATR and structure targets, and shows how to check hit rate and holding period alongside them.
A distant target raises the profit from a single trade, but some trades never reach it. The size of a target only means something when you look at the hit rate and the loss when it fails together.
The rule "only enter when the reward-to-risk ratio is at least 2:1" is a familiar one. If a trade ends at exactly +2R or -1R, the win rate has to exceed one third for the average result to be positive. But choosing a target does not choose that win rate.
In the BTC daily sample from Part 1, the average result per trade was +0.18R with a 1R target, +0.13R with 2R, +0.62R with 3R and +0.84R with 4R. Doubling the target from 1R to 2R produced a lower result. This is why the size of a target alone does not predict the order of performance.
This part examines that difference through hit rate and holding period. Entry is a next-bar open buy after a 20-day high breakout, and the initial stop is two times the prior ATR. It is a past comparison on a single instrument, excluding commissions and slippage; a target that scored high here is not necessarily the best one in other periods.
Keep hit rate and the strategy's win rate separate
Observing the 211 signals independently, the rate of reaching 1R before the stop was 57.8%, 2R was 43.1% and 3R was 37.4%. It is natural that fewer trades reach a target as it moves higher along the same price paths.
But when only one position is held at a time, the entry dates differ by target, because signals that appear during a holding period are skipped. In this calculation the actual win rates were 58.8% for the 1R target, 37.7% for 2R, 40.3% for 3R and 37.0% for 4R. The 3R win rate being higher than 2R does not mean the same trades reached the farther target more often. It means the set of trades actually taken was different.
If the only outcomes are target T or -1R, the average result can be computed as "win rate × T − loss rate". If some trades ended at an intermediate price because of the maximum holding period or the end of the data, you have to average each trade's actual result. This sample also includes trades closed at the close after at most 120 bars or on the last day of the data.
So when comparing targets, record the target size, the actual win rate and the number of trades together. Use the hit rate of independent signals to understand price paths, and compute strategy performance from the trades the rule actually selected.
While you wait for a large target, you can miss new signals
The 25 trades that won at the 3R target were held for an average of 27.8 bars. A distant target can take a long time to realize its profit, and a strategy that allows only one position cannot take other signals in the meantime.
The trade bought at $93,443 on April 23, 2025 had a 1R of about $6,845. It reached the 2R target 27 bars later on May 20, and the 3R target 78 bars later on July 10. With a 3×ATR trailing stop, this trade would have been closed at +1.53R during an intermediate pullback. The 3R target earned more, but it required a longer hold.
This difference does not show up in the average result per trade alone. When you raise the target, check total profit, average holding period and the additional signals skipped together. Even if profit per trade increases, the result over the whole period can differ.
The same target gives different results depending on how long the trend lasts
The trade bought at $69,335 on August 20, 2026 reached the 3R target the next day. Price then retraced, and holding with a 3×ATR trailing stop would have ended at +2.09R on September 15. In this trade the fixed target locked in more profit.
The trade entered at $44,350 on February 8, 2024 was the opposite. After reaching the 3R target 7 bars later, the rise continued, and the 3×ATR trailing stop closed at +6.12R on March 5. The MFE during the trailing hold was 8.72R on March 4, the day before the exit. However, we do not assume that all of this peak unrealized profit could have been realized.
You cannot rank targets by picking only one of the two cases. You need to check both the trades that kept rising after the fixed target and the trades that reversed near it. Looking only at the high after the target makes a comparison that favors trailing, since it leaves out stop losses and holding costs.
An ATR target is tied to volatility at entry
In this sample the initial stop distance is 2×ATR, so a 3R target equals a 6×ATR target. In high-volatility periods the target in dollar terms is farther away, and in quiet periods it is closer. This uses ATR as a common unit for the stop and the target.
Here the target is fixed using the ATR at the time of entry. If you moved the target farther out each time ATR grew after entry, it would become a different strategy from the rule that was first tested. You can build a version that updates the target, but then the update timing and conditions have to be defined and compared separately.
Whether to fix the target or to wait for a longer rise with a trailing stop is decided by looking at the holding period and the distribution of results. If you switch methods in the middle of a trade just because price has risen, it becomes hard to compare against the performance of the original rule.
For structure targets, check the price rationale and the distance separately
Another approach is to set the target at a prior high or the top of a box. For example, the measured move, which adds the width of the previous box to the breakout price, is one way to pick a candidate target after a breakout. It is not a law that price must move that far.
Taking the difference between the March 2024 high of $73,777 and the August low of $49,000 as the box width, the price obtained by adding it to the top is $98,554. This is about 4.5R from the November 7 entry price of $75,572, and the November 21 high later exceeded that price. This single case only shows how a target can be set; it is not a result that verifies an advantage for structure targets.
Even when you use support and resistance as target candidates, check the distance from the entry price each time. If you target a nearby resistance, the profit available relative to the stop may be small. Whether to filter out that signal is decided by comparing the results with that filter added.
Record on the same basis before changing a target
- Target and stop: Set the price and the R distance before entry, and write down any condition for updating the target.
- Performance: Compare win rate, average result per trade, total profit and number of trades over the same period.
- Time: Check the holding periods of winning trades and losing trades separately.
- Path after exit: If you observe 20 bars after the target, record the low as well as the later high. Recompute the results of other exit rules rather than assuming them.
- Revalidation: Check whether the same target plays a similar role in a period that was not used in the comparison.
The grounds for changing a fixed target lie in differences that repeat across trades under the same conditions, not in the regret over a single trade of "if I had held longer then". Record the extra profit gained by raising the target together with the extra trades that did not reach it.