You see me do it daily in chat room, but
let's talk about it!
How do you determine if a trade is worth it?
When you short is the fade worth more then the perk?
Vice versa, is the long worth battling into the downside?
Here are some tips.
Tip 1) Have a 2/1-3/1 ratio or more. 1/1 ratio or 1/1.5 ratio isn't
really worth it
Example -Say you buy ticker $DANG at $15.15 your risk is $15 for potential
reward of hod at $15.35. 1/1.5 ratio not worth it. -Now lets say you buy it at
$15 and your risk is break below $15 but reward its $15.35 thats a 3.5/1 ratio.
Tip 2) Knowing when to cut losses.
Example - If your set risk was .10-.20-.30 and so forth. Respect your rules don't
add into a loser. Unless you have a final stop in play. Yes I do dip buy and
say if this goes to this price I'll add but if it hits this price I'm out. - In
order for you to be profitable its about your odds, nothing more and nothing
less.
Tip 3) If your emotionally compromised, then cut the day short.
Don't force.
Example -If you never play with size and you start to after big losses,
you're #$%%^ed -Block out all emotions, don't worry about next months bills. If
you do you're #$%%ed Need I say more about this Tip?
Tip 4) Plan your 3 E's -Entering -Exiting -Escaping
Tip 5) Use Limit orders vs Market orders
Tip 6) Have a Plan!!!!
See you in the chat
room!
Thanks for reading,
Derrick Leon
thanks for the blog post, "Escaping" lol I like that one, when having an "oh shit"
ReplyDeletemoment.
Tip#1 really puzzles me. Though the high reward-to-risk is often talked about in the trading community.
ReplyDeleteTaking your example, you buy a stock at $15 with a stop at $14.90 and a profit target at $15.35. You have a 50% chance to get to $14.90(your stop loss) and a 50% chance to get to $15.10. There is a 25% chance to get to $15.20, a 12.5% chance to get to 15.30, and only a 9.375% chance to get to $15.35(your profit target).
A binomial tree is a good visual representation of this concept.
Now, assume your methodology determined that there is an 80% probability that the stock will trade at $15.35 before it will dip below $15 (which is the FAR more important aspect of trading). Should you not take the trade at $15.15 since your risk exceeds your reward? I would argue against this. If you are 80% sure that it will trade to $15.35, why not take the money? In addition to that, the binomial tree is on your side. Because in the binomial tree concept, you have a 50% chance of hitting your profit target(15.35) and a 43.75% chance of hitting your stop loss(14.90)
This is just my opinion based on my experience and some food for thought.
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ReplyDeleteBinary options scam reviews