Reward/Risk

[sebfr]

Hi everybody,

I would like to talk about a crucial notion in trading for me : principle of "Risk/Reward" in each trade you make. Knowing and understanding risk is the greatest way for a trader can reap rewards.

First rule :
Never never never buy/sell a stock if risk is more important than reward...Basic...Ok...Make your decisions on stocks that have a Reward/Risk of 3 or more. You risk 1 dollar ok but you can gain 3 dollar. If you are right 50% of time you win !!!!! The most hard is : how to determine a good level of risk/Reward...

Here is an example for today (20060804) for stock "AKAM".
Stock price : 40.25
Stop price : 40.47 (Be careful : This level is not an absolute level -> It permit me to know if i can place a selling order.)
Target price : 39.20

My risk/Reward : Reward (1 - (40.25/39.20))  / Risk (1 - (40.47/40.25))  = 2.6 / 0.54 = 4.8 ! Great...WE CAN TRY...NO guarantee to success but GOOD decision.

Cf. dOC WORD FOR MORE EXPLANATIONS.

GOOD TRADES.

[sebfr]

Great for AKAM -> + 2.6 % !!!!

[sebfr]

Hi, another one : BIDU...

Well, two possible way for this stock :
1. Broke with high volume his resistance at about 74.95..
2. My favorite (my play) : Broke his support at 73.5. Target at about : 71.55

Reward/Risk : 2.72 / 1.97 = 1.38...Not too great but possible...

[sebfr]

Hi,

An ascending triangle is formed on BTU...BTU is on an Downtrend...

Possible scenario : Ascending triangle breakout at 49.10 and price go up support at about 50 - 50.5. If resistance well tested price go down...

Buy at 49.10
Target at 50.10
Stop : 48.5
Reward/Risk : 2 / 1.23 = 1.62...

And seel on pullback at about 50.10...

[sebfr]

Another good opportunity...CYBX..

If support at 16.51 is broken then SELL....

Sell at 16.50
Target at 16.08
Stop at 16.83

Reward/Risk : 2.6 / 2 = 1.3....

[sebfr]

Another : RMBS...

Buy at 11.33
Target at 11.75 (11.98)
Stop at 11.18

Reward/Risk ->3.7 / 1.34 =>2.76...Good

If volume very good and NASDAQ weel oriented, RMBS can Fill the gap and go to 12.47...

[sebfr]

BTU was good when stock tested 49.10 zone few hours after open...
CYBX was flat...No direction...Be careful...A very good support at 16.3 is formed...If stock penetrate this zone, sell  this stock....
RMBS disappointed yesterday...but pice could increase today...

AFFX is the stock of the day...Look at th chart