Monday Morning and were back it today, folks. Finally back at my desk so expect the morning and afternoon editions to be hitting your inbox this week. We have an action packed week ahead and unfortunately it is looks of economic news. Feels like every week is the same. Fed goes to talk and has the market participants on edge. I truly wish they’d stop having what feels like daily meetings. But I guess they have the need to feel important.
- This is where we stand, we had a nice move up over Thursday and Friday. Today, with we stand right at our line here. Will we push higher into the week or does the economic news win again and push us down?
- Economic news all week. This could be a whip saw week.
- – Powell set to testify tomorrow and Wednesday in front of Congress.
- – Unemployment rate comes out on Friday as well. If this continues to trend how it has, it could pivot the Fed to continue to increase rates until inflation fades.
Idea of the Day
Nike has made a nice run since the October lows it printed. Now were back at an area where we can see strong support. The idea here is that we can hold this line that it finally got above. Resistance has turned to support. That’s the hope, now lets figure out how to play it in case it does not do what we expected.
- Type of trade: swing
- entry: I like $120-121 area
- Stop Loss: Below the lows of $117.50 or if you want more risk $115.
- Target: Depends on where you set your stop loss. I like to aim at right below $130 on this.
- Risk to Reward: Giving myself around $2.50-3.00 on the stop loss area. Aiming for $8-10 in profit. Solid risk to reward here.
Trick of the Trade
- Risk to Reward
Spoke on risk to reward today on our trade idea, so let’s dive a little deeper into this. It seems like a simple concept but it can get lost when we are focusing on so many other things.
The whole goal here in trading is to make or extract money from the markets. How can we do that? Well, we have to determine our risk.
- What is our stop loss?
- What is our target range?
- Am I in a good spot to take a shot?
Of course there’s much more we need to think about but this is a start. In the Nike example above, let’s keep it simple and say we want to enter in at $120. We have to determine everything about this trade before we jump in. We can’t simple think of this will work here and place the trade.
A Simple way we can determine if we should be in a trade or not is simply risk to reward. Everyone has different tolerance, so ill use myself as an example. I want atleast a 1:2 Risk to Reward ratio.
This means ill risk $1 to make $2. which over 100 trades. Even if im right 50% of the time, im still profitable because my losers are never bigger than my winners.
In Nike above we want in at $120. out at $3 below that, to keep it simple. Then we are aiming $9 above $120 for targets.
In this example we risk $3 for a potential of $9.
That’s an example of good R2R. The whole point is to plan it out, have an idea, then execute it. Don’t go into the trade not knowing how much you want to risk to where you want to exit.
Long one today, lots going on and a long trade tip (sorry). Let’s have a great day and try to trade them well. If we can get a flat or green market we will be looking good for trades today but if we come down. I’ll likely sit on the sidelines, again.
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