Above is a usual trade setup uses by me to perform Risk to Reward analysis before I press the button to
buy or sell.
With a customized riskcalculator that I have programmed many years back, assisted me to determine
if the risk is worth to take or just let it go instead.
What make a good trader is nothing more than the tools he uses to trade the market. With simple
tool like this calculator, once can easily walk away from lousy deal,instead look for another stock
that presents better returns although there is no guarantee to win in trading. But we close the gap
up to make a good trade.
As you can see in this calculator, I have the cutloss level just beside the target level (near term resistance)
where I make this the 1st priority in any trading. Always determine where will be the cutloss, so that
you can easily obtain the risk and reward ratio at the end of the calculator. With this estimation of
the risk that you have to take inorder to recieve the rewards, you can easily make a quick decsion whether
to take the trade or just leave it along.
Many times, when we found a stock that is trading with excessive volume and has been trading higher for
past few days, we may have the urge to jump into the stock without analyzing chart on the possibly near
term resistance or support. With this risk calculator, you can easily enter the buy price (support level) and
sell price (near term resistance level) and cutloss (below recent support level). Once you have all these
data key in, you can check the risk to reward ratio if it is still a good trade.
Never rush to buy a stock that has been in the top volume for days. Nothing is free as this could be a trap
setup by the professionals to trick the herd to go long so that the professionals can transfer their holdings
to the weaker buyers. Once the transferring is done, the stock will continue to move higher for the next few days but without volume to support this upmove, so the stock start to tumble down like a stack of cards.
Dont be greedy, just be patience in trading. Always buy at channel base where the stock is quiet and unnotice by majority where there is sign of accummulation from the professionals. Such indicators in my system to determine this strength is as follow:
Test Base - professionals are probing the base, if the next bar shows successful test, the price will go higher
Reduced Selling Pressure - after a big sell off, market starts to cool off slowly and move sideway, reduced selling pressure is witnessed as any selling has been absorbed by the professionals so that they can stage an upmove in the near future when the catalyst for a bullrun is present.
No Supply - selling has reduced significant and if there is no selling, stock will move sideway or uptrend.
Markup - price is marked up to trick shortists to cover their shorts, usually a "V" up move.
Demand coming in - professionals are coming in to buy up with average to high transaction volume.
Bottom reversal - price reversal from bottom, forcing shortists to worry and cover shorts
Climatic action - heavy transaction volume at the lowest low but close higher near the day high, the professionals are finding worth in the stock and decide to absorb all selling and push price higher instead.
These are just some of the indicators that I have created by examing the demand and supply of the
market.
A good reference site to learn more about the price and volume action is the popular "tradeguider" video
from youtube. Where the professionals are telling the truth about the market.
