The Basics of Trading

Hi Monarch

The overtrading aspect of risk and reward is something that I hadn't actually thought of.

Risk / Reward really shows when to get in and when to stay out. Most of the time as traders, your watching a stock to set-up and being patient enough to allow the trade to come to you is something that new traders struggle with

Thanks for pointing that out Not sure it was important enough to post twice though

hi ft
is there a formula to calculate the risk / reward is just divide this two factors or there is another way?
thanks...

Hi Techcherry

It's simply the Reward Divided by the Risk.

Hope that clears it up

Now I've worked out how to get screenshots of an acceptable size here is my attempt at analysis. I did the homework when requested but haven't posted it till now. Seems an excuse just like I'd use at school ;-) .

Looking at the chart now I wouldn't personally consider it as an entry yet as it is still too far from the trendline and as a result a logical stop the other side of it.

Cheers.

Andrew.

For BOC: Large descending triangle broken to the downside. I'm undecided whether a pulback to R has occured. As such for now I'd pass.

However I would wait for a pullback and a potential 'High Swing Point' If the high touched 790-800 I'd enter a limit short at the low of the previous day ... so if the price made a new low I would have entered a short with a stop at the low of the previous days 'high swing point'. The triangle target is problematical due to the dreaded FA. Normally it is the height of the triangle which in this case is about 1100 less 800 = 300 taking the price to 500 (EPS is forecast about 58p Div 38p so that would give a PE of 8.6 and a Yield of 7.6%). It is not beyond possibility (but might be the end of the Bear!) but is something I like to check to see when the value players might start sniffing. Anyway given that, if I could enter on a bounce from 800'ish I'd have a target of 730. If the triangle was entered again I'd wait for a 'high swing point' from the trendline - same target - closer = higher probability.

Note to any readers - this is not the sort of trading I normally do. I might know the terminology but I haven't got the experience.

Cheers,

Andrew

Hi ISquared

Your analysis of both BAY and BOC are excellent.

The Funndimental side of things went straight over my head, but the TA I could understand

Sorry Mark, but this is completely wrong.

A trendline requires two points (not three) the first point should be a reaction low if looking at a bull trend or a reaction high if looking at a bear trend.

The second point is ideally a second reaction high or low, but not necessarily, it may also be a level of support or resistance.

This is used particularly on breakouts, when the price charges up (or down) at an unprecidented and unsustainable rate (and thus is more likely to retrace than anything else). In this situation the trendline is linked from the high or low to a point along the broken support or resistance level, in line with the price action. The reamina like this until a second more established point is made.

Trendlines do not 'work' because 'everyone sees them', I've never read such rubbish!

They are an ever-changing level of support or resistance, points at which the buying pressure or selling pressure is sufficient to hold the price action - giving you your next points in the trend, not the other way around.

There is endless talk on risk/reward in trading/investment literature and forums.
That's fine, but let's think for ourselves here.
All risk/reward sums are without merit other than in spread and option trading.
Why?
Where is probability in this?
You might say you are trading 1000 shares with a take profit target (reward) of $1 and a stop loss (risk) of 25c.
Fine you say, 4:1
Sorry, simply not so.
The calculation is incomplete, totally meaningless in fact, without considering the probability of the two events occurring within any set time frame.
If the probability of the $1 gain is only 20% say, and the probability of a 25c loss is 80%, that rather messes up the maths, doesn't it? Messes up the trade actually.
So if we trade on the basis of R/R we are being self delusional, are we not? ;-)

Mr. Charts