Risk Reward and Trading for a living
January 24, 2006 by Trader Rich
These were comments posted by Greg and Blackday, both of them more experienced traders. In addition, it should give us motivation to strive towards our goal. Blackday has been trading full-time for 8 years now! (Thanks Guys)
Blackday: "The turning point at which trading became successful for me began when I placed my stop and target an equal distance spread from the spot price. I bought the risers and sold the sinkers … I have never once looked back."
Greg: "I’m familiar with the stop loss/target stategy you use. What you also do with your decision-making is consider risk to reward ratio very carefully. Agree?"
Blackday: "In reality, risk and reward are equal measures for it is a wizard that would be able to tell you with absolute certainty where the market will end up. By placing a target and stop loss an equal distance away, we are then left with the decision on our preferred direction.
Let us all for one moment forget about why the market is moving today and instead concentrate on where the market is heading. How can we find this out? First we must look at the historical price action on our choosen time frame right up to the current spot price, for it is here that we find the strongest clue for our entry. Then we must pick up the trend and run with it. For clarity, remove all chart studies and indicators from the screen save Fibonacci levels and trendlines, keep watching price action. Make your entry and note the price formation as it takes shape (higher highs + lower lows for longs, lower lows + lower highs for shorts), look to previous tops and bottoms and use them as intermediate targets if they appear before your own target level and use them to adjust your stop loss.
Now we can switch our attention to why the market is moving and continue to monitor if matters have changed. Read the the news as it flows (I use AFX, 4Cast and UBS for this purpose), concentrating on limiting a possible loss until such time as you are comfortable with what it could bring ie: stop to break even. There we have it - a fighting chance - a jolly good one at that."
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Greg: Excellent trading outline. Are timing (e.g. best time of day to trade) and volatility important for you?
Greg: Excellent trading outline. Are timing (e.g. best time of day to trade) and volatility important for you?