While I am pondering life over Saturday morning coffee I have 2 questions/views for the BT.
Most of the literature written about trading/investing talks about the importance of a trade plan, the need to analyse every trade, plan, plan , plan etc etc. To be blunt it was nearly enough to convince a concept person like myself that I should ever go near the share market.
Anyway 2 points/questions;
1. A while ago I convinced myself that such advice is written by the types of people who love planning/reviewing and of course have a natural disposition to "write that advice down". I suspect there are just as many (more?) peops making money (and of course many more losing $$$$) who are instinctive and act on there gut, price analysis and years of experience. Thoughts?
2. This is a bit of a technical trade management question that has intrigued me for a while. I hope it makes sense?
Lets say you follow a TA entry into share ABC after it breaks out and back tests $1. it had a previous trading range 90c -$1 so in a disciplined way you set a stop (physical or otherwise) 0f 90c. Risk = 10c.
Big resistance on chart @ $1.30 so set target of 1.30. Reward =30c Risk/Reward = 3 not bad.
now price moves to $1.20. The fact is if you leave stop at 90c is that the reward at this stage is only 10c and you are risking 30c R/R =0.3 Awful.
Often answer is move stop to say break even; Risk =20c Rew = 10 R/R =0.5 NO good
Conventional move might be to try 10c trailing stop gives Risk =10c reward =10 R/R =1 mmmmm
Lets say we put our 10c trailing stop in and price behaves and gets to $1.29 the FACT is at that time you are risking 10c to make 1cent R/R =0.1 AWFUL
My point is that using any form of stop loss the reward/ risk ratio move to an infinitely small number unless you move your stop figure to a commensurately small number meaning you will almost certainly be stopped out before your target. Any thoughts?
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