Risk versus Reward

March 18, 2019

Silver prices advanced further from last week´s chart book review.

Now what? The question is: “How much for how much”?

Risk versus reward is likely the most overlooked and misinterpreted part of trading. The most common approach of R/R by technical analysts is to set an expectation prior to a trade entry. A relationship between entry, stop and target price.

It leaves completely out what actually happens in the market thereafter. No matter if you use advanced methods like chandelier and parabolic sar, or standard ones, like percentage trail or price increment trail stops, they all simply leave true probability equation of actual market behavior, for the most part, out. As a result stops are most often placed to tight and exits are far from ideal. Lets illustrate on this weeks market behavior one exit strategy that is principle based and rather maximizes profits according to actual market behavior.

We are long two positions, silver and gold, and have captured sizeable profits on each position with having taken off 75% of position size on each trade.

So we are left with two runners (the last 25% of a position), one in gold and one in silver.

 

When Gold hit a strong resistance zone on its daily chart, we aggressively exited the gold position in its entirety
 

 

Gold in US Dollar, daily chart as of March 17th 2019 a

 

Prices advance a tiny bit more that day, but took out two days of profit in the consecutive session:

 

 

Gold in US Dollar, daily chart as of March 17th 2019 a

 

Prices advance a tiny bit more that day, but took out two days of profit in the consecutive session:

 

Gold in US Dollar, daily chart as of March 17th 2019 b

 

The aggressive profit taking on a market related position leaves us with the needed degree of freedom. It provides our silver runner the room to breathe for a possible second leg.

This positions stop is still resting at break even entry levels. If getting stopped out now on this 1/8th of total position size of both gold and silver position combined, it is virtual meaningless. Should a trend continuation evolve on the other hand, from these price levels here, even this relatively small amount of money exposed to the market, can contribute substantial additional profits. Let us point out that we kept the silver runner versus the gold one for a reason. Looking closely you can identify that silver actually had broken already some resistance above (red line).

 

This makes it as such the preferable choice:

 

Gold in US Dollar, 60 minute chart as of March 17th 2019 b

 

The daily chart shows even more drastically, “how much” would have been needed to risk in regards to a wide stop, for possibly locking in larger profits.

Any of the previously named stop methodologies would have been taken out and minimized returns.

 

Silver in US Dollar, daily chart as of March 17th 2019 b

 

The true meaningfulness of a bit more complex exit strategy, versus the one of a preset indicator, is the psychological degree of freedom it creates for the market participant. It allows for ease of execution. And with more choices created, an alignment along the markets. So it truly allows for profit maximization without sleepless nights.

 

Join our free Telegram Group :https://t.me/joinchat/HGe22hDDEEl0LvFGAgEZ9g

 

 

All published information represents the opinion and analysis of Mr Korbinian Koller & his partners, based on data available to him, at the time of writing. Mr. Koller’s opinions are his own and are not a recommendation or an offer to buy or sell securities. Mr. Koller is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations. As trading and investing in any financial markets may involve serious risk of loss, Mr. Koller recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

 

 

 

Although a qualified and experienced stock market analyst, Korbinian Koller is not a Registered Securities Advisor. Therefore Mr. Koller’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction. Past results are not necessarily indicative of future results. The passing on and reproduction of this report, analysis or information within the membership area is only legal with a written permission of the author.

 

 

Important Trading Risks and Earnings Disclaimers - Terms of Use

 

RISK DISCLAIMER: All forms of trading carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Please ensure your chosen method matches your investment objectives, familiarize yourself with the risks involved and if necessary seek independent advice.

 

 

U.S. Government Required Disclaimer - Commodity Futures Trading Commission. Trading financial instruments of any kind including options, futures and securities have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the options, futures and stock markets. Don't trade with money you can't afford to lose.

 

NFA and CTFC Required Disclaimers: Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in Foreign Exchange (FX) trading, you should carefully consider your investment objectives, level of experience and risk appetite. Do not invest money you cannot afford to lose.

 

EARNINGS DISCLAIMER: EVERY EFFORT HAS BEEN MADE TO ACCURATELY REPRESENT THIS PRODUCT AND ITS POTENTIAL. THERE IS NO GUARANTEE THAT YOU WILL EARN ANY MONEY USING THE TECHNIQUES, IDEAS OR PRODUCTS PRESENTED. EXAMPLES PRESENTED ARE NOT TO BE INTERPRETED AS A PROMISE OR GUARANTEE OF EARNINGS.

 

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAN ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

 

 

All information presented or any product purchased from this website is for educational and research purposes only and is not intended to provide financial advice. Any statement about profits or income, expressed or implied, does not represent a guarantee. This presentation is neither a solicitation nor an offer to Buy/Sell options, futures stocks or securities. No representation is being made that any information you receive will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Please use common sense. Get the advice of a competent financial advisor before investing your money in any financial instrument.

 

Terms of Use: Your use of this educational website indicates your acceptance of these disclaimers. In addition, you agree to hold harmless the publisher and instructors personally and collectively for any losses of capital, if any, that may result from the use of the information. In other words, you must make your own decisions, be responsible for your own decisions and trade at your own risk.

Tags:

Please reload

Recent Posts

August 12, 2020

August 7, 2020

August 5, 2020

July 23, 2020

Please reload

Stay Up-To-Date with New Posts

Search By Tags

Please reload

join my free

telegram Group

Mentorship

packages

download my

free book