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Strategies & Market Trends : Strictly Buy and Sell Set Ups -- Ignore unavailable to you. Want to Upgrade?

To: profile_14 who wrote (1774)	1/12/2005 6:32:10 PM
From: chowder	Respond to of 13449

Profile, You are correct. I didn't notice any of the fundamentals. I must leave that to others. Those fundamentals should help in the longer term though. dabum

To: profile_14 who wrote (1774)	1/12/2005 6:55:09 PM
From: chowder	Read Replies (2) \| Respond to of 13449

Profile, A couple of weeks ago, you said that you were surprised that the portfolio had more losers than winners, even though the portfolio was profitable. You said something about my careful selection might have provided a better win to loss ratio. I think I can explain it better now that I have had time to think about it and analyze the returns. If most people have a group of stocks to pick from, some will go with the stock that has the best fundamentals. Others may pick the stock that has the most ground to gain from the current price to their old highs, some call it playing the laggards. Some people may choose based on price and others may choose a company merely because it made money for them in the past. I look for stocks that are sitting around major support or resistance levels. What I'm looking for is a reward to risk ratio. I look at how far the price is from resistance when going long, how far from support when going short. Then I measure the distance I need to go to prove I'm wrong in my selection. This is how I come up with a reward to risk ratio. Let's use ADBL as an example since it is a recent play. Here was my analysis of ADBL on Tuesday. ADBL (short). ADBL had dropped below the 20 and 50 day moving averages last week. It is currently in a stage 4 movement as explained by Weinstein. The price has attempted to rally but is now coming up on resistance at both the 20 and 50 day moving averages. Since money flows are negative and the slope of the 20 day moving average is down, this type of setup is shortable nearly 100% of the time. It's also important to note that selling volume is picking up. stockcharts.com[h,a]daclyiay[pb20!b50!f][vc60][iut!Lah10,30,5!Lc... This is a great low risk trade because the short is into resistance. So, your stop is very close at hand. Entry target $24.80. Price target $22.80. Initial stop loss $25.25. ----------------------------------------------- My reward target was $2.00. My risk target was a loss of just 45 cents, based on my stop. The reward to risk ratio was 4 to 1. I was willing to risk 45 cents to gain $2.00. I actually ended up doing a little better than that, I ended up with a 5 to 1 reward. Now, there is a trade off when when one seeks a 2 to 1, a 3 to 1 or a 4 to 1 reward to risk ratio. The odds say that you will stop out more than you will hit your target. You aren't giving the market enough downside room to manuever. However, when the price target is hit, your gains outweigh your losses and that's exactly what has happened. It was the careful selection of those stocks that had the potential to hit the reward side of the ratio that has made the portfolio consistently profitable. If I were to use a 1 to 1 ratio, where I was willing to risk a dollar loss for a dollar gain, my accuracy rate would be better. I do this with intraday trades but not swing trades. If I were to seek a $10 gain but only be willing to risk $1 in losses, is that a reasonable objective? You would certainly have more losers than winners. So in summary, one has to find a reward to risk ratio they are comfortable with and work within that foundation. dabum