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Established 2002

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Risk and reward in the stock market.

Stock Market trading  & Options Trading Coach teaches you
about risk to reward ratio trading stocks or options.

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Risk to Reward Ratio

     Would you risk $1.00 to make .25 cents?  How about .50 cents?  or $1.00?  You should be saying, "No." 
You're going to try to at least double what you're willing to risk. That doesn't mean doubling your dollar amount invested, it means the amount that you're willing to risk in that trade.

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Why be disciplined about taking small losses? Because...

Lose 20% --- you have to make 25% to get back to even.
Lose 30% --- you have to make 43% to get back to even.
Lose 40% --- you have to make 67% to get back to even.
  Lose 50% --- you have to make 100% to get back to even.
 Lose 60% --- you have to make 150% to get back to even
  Lose 70% --- you have to make 233% to get back to even.
  Lose 80% --- you have to make 400% to get back to even.

Well that sucks, doesn't it?  But you get the idea. And, you're going to need to manage the size of that trade.


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SAMPLE RISK/REWARD ANALYSIS

This is computed showing
a "long" purchase.
This is computed showing a "short" sale.

TARGET PRICE
 (see chart shown at right)

83.00

63.00

ENTRY PRICE

70.00

70.00

SELL STOP, if long,
placed
below your entry px 

68.00

NA

 BUY STOP, if short,
placed
above your short entry px.

NA

72.00

RISK
(entry price minus stop price)

    2.00

2.00

POTENTIAL REWARD
(target price minus entry price)

   13.00

8.00

NECESSARY REWARD
(risk
X the risk multiplier**)

 4.00

4.00

POTENTIAL Risk to Reward Ratio
(potential reward divided by risk)

6.5

4.0

ACCEPTABLE RATIO? SHOULD BE 2 OR BETTER

**Risk Multiplier may be changed to meet your trading style, recommend using at least "2" .

2.00

Should you really do this trade?  What would you risk?

risk reward stock trade




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