Hello,
I notice that lot’s of traders look success over percent gain in trade what have. I like to show one example what had last week and like to explain why I think that is not 100% correct.
For me main measure is risk/reward result. Those who follow this journal know that my first language is not English and I hope that will not be problem.
Example: lets say that I bought XYZ at $10 per share and I sold it at $11 per share. That is nice result, 10% and sounds great. However, for me important is how much risk I took on that trade. I think that every serious trader must have completely trading plan before will take any trade. That means entry, stop and possible target area. Of course target area is always questionable because depend on market and stock action after entry. Let’s back on example. If my stop was under $9 that mean s I risk $1 and got $1 gain and in that case risk/reward = 1.
From my experience with that risk/reward, you will very hard be successful trader and that is what all we want to be. Because of that, I always look for bigger reward then my risk. I can’t go dipper in that problem because I will need a lot of space to explain that here but I hope you all understand my point. Point is that good risk/reward trade will cover several negative trades and at the end that results with profit every month when we count our results.
Here is one live example what we had last week.
I bought AAPL at 05/07/2007. Entry price was 101.45 and stop was under 101. On entry chart you can see nice 60 min triangle. Triangle came after strong move up and gave us nice risk amount for move what we could get.
http://www.ivicacharts.com/diagrams/2007/05072007aapl.jpg AAPL entry chart
That was swing trade, because most of 60 min chart setups finish as swing trades and need several days to develop and see area what we like to see. With AAPL move up I was trail stop and I closed AAPL last Friday at 106.95. After touched 108 area I trail stop under 20sma on the 15 min chart and that was under 107. I didn’t want risk great reward what I already had.
Here is exit chart for AAPL.
http://www.ivicacharts.com/diagrams/2007/05112007aapl.jpg AAPL exit chart
Results are: with $0.45 risk, I got $5.50 gain and that mean risk/reward=12.22. That mean AAPL will cover 12 negative trades if I will use same risk in that trades. Of course, we can’t always count on that great reward but most of trades are above risk what I use and at the end that result with profit, what can see on tracking records what I post here in journal.
Hope you all understand what my point with this explanation was and if anyone will have any question feel free to ask.
Good luck
Ivica
