Rookie Corner : The Mechanics VI

RISK = Entry — Stop Loss = $174.32 — $172.26 = $2.06

REWARD = Target — Entry = $180 — $174.32 = $5.68

RISK/REWARD ratio = REWARD / RISK = 5.68 / 2.06 = 2.75

We can express this as we are risking $1 for every $2.75 we expect to make. Does this fall into your personal trading system? Were you looking for 3 to 1 or 5 to 1, that will depend on how adept you are at picking a direction? We will look at a few more examples in next weeks blog to solidify this concept as this is extremely important to be a successful trader. Until then look at some stocks and do your math and see if they fit the bill, if not then move on to another trade as there is always more trades out there for smart traders.

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