Risk to Reward ratio is the QUEEN - Number two reason to tradeWhen i want to take a trade, I look for ODD ENHANCERS, the more odd Enhancers I have the more likely the market will turn in my favour.
One of the most important Odd Enhancers is proper Risk to Reward ratio. Rs/Rw means how much am willing to risk if the trade goes against me, divided by how much Reward is trade gives if it is profitable. A properly weighted Rs/Rw ratio yield a factor of 4 to 5.
In this trade on QSR traded on the NASDAQ, am risking a little over a dollar for a reward of four dollars & much more if the new formed downtrend continues.
now, we got the Rs/Rw ratio out of the way of teachings. why would i Enter this trade. If Risk to Reward is the Queen then identifying the Trend is KING.
You must of heard people say, trade the trend, swim with the current not against it & you flow.
- first step Identify the Trend on any longer term chart. (there are many techniques for this)
- Second step trade the trend corrections on the Short term chart (this is the chart I use to identify my ENTR price & my STP losses)
This is it! identify the trend on the bigger picture & look for opportunities to join.
In this Trade. according to my Trend identification technique, I observed the Week (W) long term trend to turn into a downtrend after it broke the last LH of the previous week uptrend. now the trend is down. am looking to short.
I ENT my SHRT at 59.80 with a tight STP above 61.03 my risk is tolerable when compared to my Reward if the downtrend was to continue. well, it is struggling. my trigger STP was triggered & am out. simple as that. I will take my small loss & walk away holding my head high in respect for my trading plan that does not work all the time but works enough that i can make a living doing this.
