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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Chris who wrote (16762)	8/25/2001 2:49:34 AM
From: Chris	Respond to of 52237

excellent stuff on risk/reward/position sizing from l3's website: If I could just add a little to the discussion about stops and all - Using Scott's risk/reward ratio of 3:1 (others may use 2:1, but lets stick with this as an example), what you really need to do is to outline your risk tolerance If you set a goal of making $1,000 on a trade (which is not to say try to make more if the trade is working, but trail the stop to protect the $1,000), then you want to limit your risk to $333 (round it to $350). You then need to figure out a reasonable stop, based on support and resistance (or you can just decide to buy a round lot like 500 shares) and make sure that your position size and/or your stop is set to limit the risk (for 500 shares, stop would be 0.70 below buy price. I prefer to assess the correct stop point based on support/resistance and size my position accordingly. The most important thing to remember is that a larger position requires a tighter stop to maintain risk management, so trading smaller allows for more wiggle, trading large without tight stops invites big losses. Position size is as important as anything in risk management, don't oversize a position. One other comment, if one is watching intraday, one sometimes can be long and short on the same day, depending on sector strength. I noticed and was short on some bank stocks while long in the tech area, but I do agree that going against the trend is dangerous. The direction of an issue is determined 50% by the overall market, 25% by the sector, and only 25% by the individual stock (this is probably more of a mid to longer term weighting, but I still think it has merit for short term trading) Got to go, have a great weekend all, and good points made by Scott - it is all about RISK CONTROL. David