Determining Risk To Reward Ratio For Night Commodity Trades
By Ultimate Trading
The Key to Making Successful Night Commodity Trades
Trading is often considered a risky business. But no one denies that
there are also great rewards to be found in the markets. This
dichotomy appears in all night commodity trades made. The key to
night commodity trades is to understand this fact, and calculate
the risk to reward ratio of each trade you make. You need to know
what the likely return of the night commodity trades is if it goes
according to plan, and how much are you likely to lose if it
doesn't. And you need to know this before you make the trade.
For night commodity trades to make sense, its potential reward must
outweigh its potential loss by as much as possible. Obviously, if
some night commodity trades are more likely to fail than succeed,
you shouldnt make the trade. If the night commodity trades are
equally likely to succeed or fail, it's not a trade worth making
either. If success is only slightly more likely than failure, you're
at least on the right side of the risk-to-reward ratio, but is it
really worth it? If there's no good trading opportunity in sight,
wait until one appears.
How do you figure out the potential reward and the potential risk?
You can determine the reward level by evaluating the strength of a
stock, by tracking the outcome of similar night commodity trades
made on other stocks for the same reason (an equivalent trend), by
considering market conditions, and last by examining the technical
and psychological resistance levels you see for the stock.
If, for example, you want to trade a particular stock based on a
trend you've observed in four other stocks which would mean you
have a good, compelling reason for the night commodity trades
you'll first judge the companys strength. Check to see if it's a
leader in its sector that always has good earnings and tends to run
up strongly during market rallies. Lets say, for this example that
Then look up the range of percentage returns those other four stocks
gave. They are between 8% and 22%. Then you will consider the market
conditions. Which are becoming more bullish. Last, you check the
resistance levels for the stock. Right now it's trading at $18; it's
got technical resistance at around $23, and although a little
psychological resistance may appear at $20, it'll be more of an
issue at $25 and certainly at $30.
A 10% rise in the night commodity trades price would bring it to
slightly below $20. Since the stock and the market are strong and
four other stocks have given good returns on this strategy, and
since the stock has been as high as $23 before, it's reasonable to
anticipate that the stock could see $23 if it goes on a strong run.
That would be a return of over 25%. It looks like the potential
return on this trade is somewhere between 10% and 25%, with it
likely to be higher end.
And what's the potential loss? That depends on where you set your
stops. Stops are a critical part of your night commodity trades
plan, and should be given careful consideration. For this example,
let's say you don't think the stock is likely to go down past $17,
since the chart shows strong support there. If you set your stop
just below $17 and it ends up being triggered, your loss will be
about 6%. That's somewhat high, but since it looks very unlikely
that the stock will head down that far, the risk of loss is not
actually that high.
So these night commodity trades give you a probable upside of at
least 10% and as much as 25%, with a relatively unlikely downside of
6%. This is a good risk-to reward ratio. If you have a good reason
night commodity trades you make, and make only night commodity
trades with risk-to-reward ratios that are very promising, you
maximize your chances for long-term success.
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Night Commodity Trades