# How to figure risk to reward (a formula)



## MARKETWAVES (20 June 2005)

* HOW  TO  FIGURE  RISK  TO  REWARD ON  A  PARTICULAR  TRADE .*

    HOPE  THIS  ONE  HELPS  IN  UNDERSTANDING .............


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## dutchie (20 June 2005)

*Re: How to figure risk to reward ( a forumula )*

Thanks for that explanation Waves.

From a purely mathematical prospective: 

Reward = Your Price Objective - entry price (+ve number)

Reward to Risk = 4 to 1

or 

Risk to Reward Ratio = 1 to 4


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## tech/a (20 June 2005)

*Re: How to figure risk to reward ( a forumula )*

Of course often "Your price objective" isnt known.

There are arguements on both sides of the fence re "Price objectives".
Personally my veiw is that setting a price objective and blindly following it maybe very costly.I have had many trades go well beyond an initial objective in fact some 300% plus.
On the other side 3 losses in a row would make the objective look a little light.
Particularly if it happens often without a good string of wins.

The only answer then is extensive testing which will then give an expected R/R and expectancy for the trading methodology you adopt.

Many who do this with price objective analysis are suprised at the result.

a 4:1 R/R doesnt guarentee profit or relieve you from possible failure over many trades.An objective is just that---often failing---often exceeding.

A positive reward to risk setup and implementation in isolation has little value.


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## MARKETWAVES (20 June 2005)

TECH  A  NOTHING  IS  100 % PERCENT  
 SO  DON'T  BE  SO  HARSH  ON  RISK TO  REWARD TRADES , AND  TRADING WITH  AN  OBJECTIVE  IN  MIND   .......


  So   why ,  do  write  about this  method of understanding as  being  a  gaurantee  ?

   What  makes  a market  place  is  all  of  our  diffrences  of  oppinions  .
   ------- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

It  is  far  more  difficult  to  *exit  a  trade  * than  to *enter  a  trade  * .... I  am  sure  that  you  have  heard  that  said before  ,,,

         THIS  IS  WHY ,

*When  making  trade  it  just  as  important  to  have  an  idea  where  you  want  to  exit    as  it  is  to  place  a stop  to  protect yourself from  a  move  against  you  .*  ( THIS IS A  PEARL  OF  WISDOM ) 

*
    THERE  IS  NO  HOLY  GRAIL /////  I  KNOW  THAT  YOU  KNOW  THIS ...*


  THATS  WHY  I  TRADE  ELLIOT  WAVES  becase  its  giving  you  a
probaility  of  where to look for a  turn  in  a  given  market  .....

  The smaller  the  risk  in  relation  to  the  price  objective , the  better  chance  of  success  in  long  haul  ....  It's just  the  way  that  is  ...

  Think  of  a  Head  and  Shoulder  pattern  ...  you  learned  of  them  long  ago ....   they  always have  a  target based  on  the  head  and  the  neckline  area ... This  is  not  my  design  ...  It  was  around  long  before  all  of  us an  will  be around  for  some  time  after  we  are  gone //

  Please  try  to  understand  the  price  target  in  a  head  and  shoulder  set  -up ...  as  an  example , Because  there  are  other  patterns  like  symetrrical  triangles  and  falling  wedges  and  ascending  triangles  that  also  have  price  targets  tied  to  them  .... Traders  have  beeen  measuring  these  price  patterns  for  a  long time ....

*Surely* ...  they  don't  all  make  it  to  thier  targets  or  so  called  objectives  ,  and    I  totaly  agree  with  you  ,  that  they  don't ..

 But ,  it  is  the  best  premise  there  is  to  work  on...  if  you  are  doing  any  type  of  teaching  or  explaining  of  price  patterns  ... this  is  always  explained  and  drawn   out  on  charts  ////


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## MARKETWAVES (26 June 2005)

Here's a  recent article on Risk to Reward ..


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

well we passed it! 4000 points! 

now 4300 is next resistance! see you there!

i am short a couple of stocks though, made a nice 23% return on MAP today and was up over 300% on CTX on my morning trade only to see it dwindle to a 5% ROE,

im trading CFDs so that why the huge returns (negative returns)

still holding short on CTX and MAP

MQG is looking like a short coming up in a few days.


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## Trembling Hand (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> i am short a couple of stocks though, made a nice 23% return on MAP today and was up over 300% on CTX on my morning trade only to see it dwindle to a 5% ROE,
> 
> im trading CFDs so that why the huge returns (negative returns)




Mate!!

return on margin is quoted by the soon to blow up.

Give us a return on risk. Just so we can have a laugh.


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

yea i can do that

LOL CFD Balance $4700

BUY CTX 5% margin 2000 units  at $13.30 total exposure $26,600 my equity $1330. Total at risk 1330/4700 = 28% of portfolio! 

sell at $13.36 for a $65 profit after brokerage.


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

entered SHORT MAP

Short 4000 units at $2.36 1 cent move equals $40 either way for me,
stock falls to $2.30 exit the trade

$944 of my equity, made $220 profit after bkge

ROE 23.31% after brokerage.


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

Losing Trade

SHORT CTX

Buy at $11.880	
Units 168.00
Total Exposure $1,995.84	
Margin 5.00%	
My Ety $99.79	
Exit Price $12.80	
Loss -$166.56
ROE -$166/$99
= -167%


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## nomore4s (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> Losing Trade
> 
> SHORT CTX
> 
> ...




lol, you're kidding me. Is this a joke?

ROE is meaningless - except to make your figures sound good. In these trades you are risking more than your original equity (as proven in your last trade), you do know that don't you?

You made $65 on a trade holding 2000 units but then lose $165 on a trade holding 168 units. That doesn't sound warning bells?


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

no its not a joke, 

yes i know about money management and risking max 2 to 5% of your portfolio, however this $5k make 6% of my total portfolio, i have other monies in commsec invested longer term,

so this is not my total position.


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## nomore4s (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> no its not a joke,
> 
> yes i know about money management and risking max 2 to 5% of your portfolio, however this $5k make 6% of my total portfolio, i have other monies in commsec invested longer term,
> 
> so this is not my total position.




I'm not talking about risking 2-5% of your portfolio.

You're quoting ROE but you are risking more than your original equity in that trade so your ROE figure is useless.
Good trading is about risk vs return. The risk vs return on the trades you posted will eventually lead to blowing up your account. What happens if your 2000 shares had moved against you as much as the 168 units or even half as much?


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## beamstas (3 June 2009)

*Re: XAO Analysis*



nomore4s said:


> lol, you're kidding me. Is this a joke?
> 
> ROE is meaningless - except to make your figures sound good. In these trades you are risking more than your original equity (as proven in your last trade), you do know that don't you?
> 
> You made $65 on a trade holding 2000 units but then lose $165 on a trade holding 168 units. That doesn't sound warning bells?


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## beamstas (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> no its not a joke,
> 
> yes i know about money management and risking max 2 to 5% of your portfolio, however this $5k make 6% of my total portfolio, i have other monies in commsec invested longer term,
> 
> so this is not my total position.




Work it out per account, otherwise you'll blow that account in the next 2 days

You have no idea how to position size (quite obvious as you are just buying round figures) and no idea about risk management.

You are walking down a very, very rocky road.


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

i do look at my charts before i enter a trade, was expecting CTX to move higher today it did, but reversed, now my charts say it looks like a good short

so is MAP and MQG maybe soon.


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## beamstas (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> i do look at my charts before i enter a trade, was expecting CTX to move higher today it did, but reversed, now my charts say it looks like a good short
> 
> so is MAP and MQG maybe soon.




The last time CTX traded at $11.88 was on the 29th may


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

yes thats when i took the trade 29 May.

well if your not going to use ROE to measure your performance what else would you use?


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

LONG TRADE STW

1/06/2009	

STW	
Buy $36.900	
Units 750.00	
Total Exp $27,675.00	
Margin 10.00%	
My Ety $2,767.50	
Sell Price $37.43	
Profit after brokerage $342.50	
ROE 12.38%


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## beamstas (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> LONG TRADE STW
> 
> 1/06/2009
> 
> ...




Where was your stop on this one?
How did you come up with 750 units?
Why did you choose STW?
Why do you care what margin you are on?
Does the margin available change how you position size?


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## clayton4115 (3 June 2009)

*Re: XAO Analysis*

1 I didnt have a stop, i look at my charts.

2 Well thats as close i want to get before totalling my portfolio out!

3. Cause i didnt want to use the SPI :


4.When we invest dont we want to record performance? I thought return on your money is a worthwhile exercise, sure beats the 3% you get after 12 months in the bank! :

5. Yes it does change, dont get me wrong i know how risky CFDS are and its very dangerous if you dont know what you are doing!!!


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## nunthewiser (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> 1 I didnt have a stop, i look at my charts.
> 
> !!




arggggh ...... i use charts FIRST AND FORMOST to work out where my stop is gunna be ...... you telling me that you have a 100% win rate by reading your charts ?


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## nomore4s (3 June 2009)

Guys I have moved this discussion to this thread as it was a bit off topic for the XAO thread.


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## clayton4115 (3 June 2009)

no my losses are more than my wins but my wins are $133 to loss of $92.

If im less confident in a trade i will trade a smaller amount like the CTX example (-166%)

well tomorrow i will be away from my desk when the market opens so i wont be able to trade much, may have to put in some stop orders / take orders for CTX and MAP as it may move against me in the time im not at my desk.


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## nomore4s (3 June 2009)

clayton4115 said:


> well if your not going to use ROE to measure your performance what else would you use?




Total return on your account after a number of trades. But on a per trade basis it is probably best to measure it on a risk to reward basis.
ROE means nothing because you are risking more than the original Equity. You shouldn't be taking the margin into account only the total number of shares purchased and the max loss (RISK) you will incur.



clayton4115 said:


> 1 I didnt have a stop, i look at my charts




When do you decide your wrong though? We're not having a go at you we are just trying to help you understand trading is about managing your risks - the only thing you can really control in each trade is how much money the market takes off you (to a certain point).

I suggest you search this forum for info on position sizing to start with.



nunthewiser said:


> arggggh ...... i use charts FIRST AND FORMOST to work out where my stop is gunna be ...... you telling me that you have a 100% win rate by reading your charts ?




Wise advice - one smart nun:


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## skyQuake (3 June 2009)

*Re: XAO Analysis*



clayton4115 said:


> no its not a joke,
> 
> yes i know about money management and risking max 2 to 5% of your portfolio, however this $5k make 6% of my total portfolio, i have other monies in commsec invested longer term,
> 
> so this is not my total position.




Then this 5k is as good as gone.

You can't include for example your house value in your risk capital to inflate your numbers. Your previous figure of 28% risk is more accurate.


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## beamstas (3 June 2009)

YOU CANT EVEN CALCULATE YOUR RISK IF YOU DONT HAVE A STOP LOSS


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## beamstas (3 June 2009)

Go and look through my thread

Im not saying the way i trade is good

But look at where the stops come from

How to choose where to put your stop

Lets say you think XYZ will support at $1.00 and you don't want it under that
Put your stop at $0.99

The stock is currently $1.10

So you have a risk of 11cents PER SHARE

Your portfolio is 5k

Risking 1% of that is 50bucks

So you can lose 11 cents per share up to 50bucks

So 50 bucks / 11cents = 454

You can buy 454 shares of XYZ


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## nunthewiser (3 June 2009)

beamstas said:


> Go and look through my thread
> 
> Im not saying the way i trade is good
> 
> ...




 minimum ASX parcel size is 500 bucks .better add a cupl for good luck


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## beamstas (3 June 2009)

nunthewiser said:


> minimum ASX parcel size is 500 bucks .better add a cupl for good luck




LOL it comes out at $499.40

Anyway does that even apply?

I can buy under $500 with IB

:S


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## nunthewiser (3 June 2009)

beamstas said:


> LOL it comes out at $499.40
> 
> Anyway does that even apply?
> 
> ...





it applies if no other same stock held, but once holding a minimum parcel ( 500 bucks ) thru etrade i can buy 10 bucks worth if i wish 

i have no idea on IB 

dodgy buggas may already know this and often use this method to bump up a few illiquid stocks from time to time ...


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## skyQuake (3 June 2009)

Can confirm that IB has no such limitation, so feel free to make some upticks/downticks!


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## ROE (3 June 2009)

*Re: XAO Analysis*



nomore4s said:


> lol, you're kidding me. Is this a joke?
> 
> ROE is meaningless - except to make your figures sound good. In these trades you are risking more than your original equity (as proven in your last trade), you do know that don't you?
> 
> You made $65 on a trade holding 2000 units but then lose $165 on a trade holding 168 units. That doesn't sound warning bells?




Agree return including leverage has to be Return on Capital
figure. ROE is something Macquarie banks will tell you but hide the ROC  which is dismall
then again I'm not a trader  but ROE and ROC are my foundation for fundamental


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## beamstas (3 June 2009)

*Re: XAO Analysis*



ROE said:


> Agree return including leverage has to be Return on Capital
> figure. ROE is something Macquarie banks will tell you but hide the ROC  which is dismall
> then again I'm not a trader  but ROE and ROC are my foundation for fundamental




If anyone knows about ROE this man would, look at his name


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## clayton4115 (4 June 2009)

well, i prefer using ROE because at the end of the day i want to see how much money i make or lose with MY money because the borrowed money is not mine and i have to pay that back.


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## Trembling Hand (4 June 2009)

clayton4115 said:


> well, i prefer using ROE because at the end of the day i want to see how much money i make or lose with MY money because the borrowed money is not mine and i have to pay that back.




No you prefer ROIM,

*R*eturn *O*n *I*nadequate *M*argin to justify you silly position sizing.


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## nomore4s (4 June 2009)

clayton4115 said:


> well, i prefer using ROE because at the end of the day i want to see how much money i make or lose with MY money because the borrowed money is not mine and i have to pay that back.




 Don't know why we bother sometimes.

Somethings just have to be learnt the hard way.


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## clayton4115 (4 June 2009)

SHORT CTX	
SELL $13.18	
Units 500	
Total Outlay $6,590.00	
Margin 5.00%	
My Ety 329.5	
BuY $12.99	
Profit after brokerage83.00	
Return on Equity 25.19%


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## clayton4115 (4 June 2009)

still short MAP waiting for it to hit $2.20


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## beamstas (4 June 2009)

clayton4115 said:


> SHORT CTX
> SELL $13.18
> Units 500
> Total Outlay $6,590.00
> ...




Are you seriously joking?

Your return on equity is 1.66% you muppet 

They opened at $12.99 so tell me, how did you short them at $13.18?

Hindsight trading is pretty easy


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## clayton4115 (4 June 2009)

opened the position yesterday before close.


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## clayton4115 (4 June 2009)

why would i want to put up false returns, the only person i will be fooling is me!


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## The_Bman (4 June 2009)

Interesting thread - Maybe should be in a CFD one.

I don't know much about CFDs and absolutely agree the return is 1.66%. And trading without an exit plan before entry is crazy.

However if Clayton really likes his formula aren't the denominators the same?

E.g. If he buys $3000 parcel with $300 of his own dollars and then exits for $80 return - ROE is 3% & Clayton's Magic formula (let call it the CMF return) is 27%

However if he loses $500 it would be -17% and -167% respectively. 

He just needs to clear he's measuring CMF


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## clayton4115 (4 June 2009)

yes calculating ROEs is spectacular when you make money, its even spectacularly bad when you lose money! like the CTX example before!


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## clayton4115 (4 June 2009)

this is a trade i took a while back 14/5

Sell QAN	
Price $1.945	
Units 3500.00	
Total Outlay $6,807.50	
Margin 5.00%	
My Ety $340.38	
Sell date 18-May	
Price $1.85	
Profit after Bkge $318.50	
ROE 93.57%


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## clayton4115 (4 June 2009)

ok here is a live trade, 

just traded CSR 
SHORT
Qty 5000
Price $1.685
Margin 5%
My Ety $421
Total Exp $8,450

lets see how this one pans out.


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## beamstas (4 June 2009)

Clayton, i thought you were a FP?

You are playing a very dangerous game IMO


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## clayton4115 (4 June 2009)

yes i am a FP, i would never ever do this with other ppls money, firstly it would never be allowed by my licensee anyways.


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## clayton4115 (4 June 2009)

opened another Short with CTX at $12.59, its sinking like the Titanic!


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## skyQuake (4 June 2009)

Do you hold overnight or just intra-day trades?


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## clayton4115 (4 June 2009)

ok here is a trade i placed yesterday which hit my limit order (small trade)

MAP SHORT
SELL $2.30
Units 500	
Total Exp $1,150.00	
Margin 10.00%	
My Ety $115.00	
Close Date 4-Jun	
Buy Price $2.22	
Profit After Bge $28.00
ROE after Bge 24.35%


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## clayton4115 (4 June 2009)

hi SkyQuake, 

most times i close position before close,

however i am currently holding two positions overnight right now, CTX and CSR as i feel the DOW will fall again tonight and im bearish on those two stocks.


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## skyQuake (4 June 2009)

Cheers. Does having such a big exposure (relative to risk capital) to overnight gaps worry u?

Do you have price targets for them tomorrow, and alternatively, stops? Or would that depend on the chart to manage your exit.


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## clayton4115 (4 June 2009)

hi yes it does worry me sometimes, especially my bigger positions (CSR) for example im holding overnight,

however i use my charts to back up my belief, for example, CSR is trading close to resistance atm, so if it were to go up it would find $1.75 and above difficult, my mental stop loss is at $1.77 - $1.80.

By leveraging so high margin for error is critical. With CSR for every cent with me or against me i make / lose $50, so i am only looking for small movements before i exit, even a 2 cent move and i make $88 (after brokerage).

p.s it closed at $1.67 so i am currently up $88 or 20.89% ROE

heres crossing fingers and toes for another down day tomorrow.


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## beamstas (4 June 2009)

clayton4115 said:


> hi yes it does worry me sometimes, especially my bigger positions (CSR) for example im holding overnight,
> 
> however i use my charts to back up my belief, for example, CSR is trading close to resistance atm, so if it were to go up it would find $1.75 and above difficult, my mental stop loss is at $1.77 - $1.80.
> 
> By leveraging so high margin for error is critical. With CSR for every cent with me or against me i make / lose $50, so i am only looking for small movements before i exit, even a 2 cent move and i make $88 (after brokerage).




1% of your account per tick 
You'd better have positive expectancy or you'll be gone by next friday


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## clayton4115 (4 June 2009)

ok, lol. my balance may be alot less, but i dont think i will wipe out my whole funds.


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## ThingyMajiggy (4 June 2009)

How long have you been trading like this clayton?


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## clayton4115 (4 June 2009)

hi ive been doing this since 13 May when i opened my GOMarkets account.

SO by all means don't think i know much about trading, i am very inexperienced and a newbie at it.


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## Trembling Hand (4 June 2009)

clayton4115 said:


> hi ive been doing this since 13 May when i opened my GOMarkets account.
> 
> SO by all means don't think i know much about trading, i am very inexperienced and a newbie at it.




Why don't you open an account with CMC.

less margin required. Will make you trades even better


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## clayton4115 (4 June 2009)

lol very sarcastic!


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## tech/a (4 June 2009)

> as i feel the DOW will fall again tonight and im bearish on those two stocks.




Feelings are always a great indicator.

There is no point in wasting time with this guy he's an FP and knows everything.
With people who call themselves FP's who have no idea of risk management in an industry which at best is struggling and seen as hopless at managing clients money and excellent at selling self serving product---what hope has Joe Public got of making a quid going to talk with the likes of these guys, and being charged for the privilage.


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## clayton4115 (4 June 2009)

Whats my personal trades got to do with the financial planning industry and financial planners?

I told you in another post a few days ago 90% of planners are crooks and 10% are genuine.

You seriously think I would be trading CFDs with other ppls money? It would not be allowed within my licensee requirements anyway! 

I told you a few posts ago I am inexperienced in trading, so keep your mouth shut if you don't know the facts.


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## beamstas (4 June 2009)

clayton4115 said:


> You seriously think I would be trading CFDs with other ppls money? It would not be allowed within my licensee requirements anyway!




It's not that he is saying you trade CFD's with other peoples money

It's just that you know nothing about the sharemarket, *and you are simply gambling with your money.* (my words not his)


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## clayton4115 (4 June 2009)

i do agree with you 100% there are alot of product floggers, believe me ive worked in a few financial planning practices and i know what goes on, i had to explain to poor old ladies that they wont see their $50k anymore because of a high flying cowboy adviser who swindled them and put them in a product bc of high commisions,  but its quite disrespectful to taint me with the same brush.


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## beamstas (4 June 2009)

I love "feeling" traders

"I've got a feeling this one will go up so im going to buy!"

Guess why 90% of new traders lose

They are "feeling" traders.


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## tech/a (4 June 2009)

*Facts.*
You basically use gut feelings for deciding on a position.
You trade excessive leverage.
You cannot calculate your risk correctly.
Your supposedly trained in a position where you should know better.

Another passenger on the Aussi Ship of Fools.


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## voyz (4 June 2009)

i used to trade like you, i learnt the hard way after bout 4 month of work to get 3 grand, i lost it all over 2 bad trades over 2 day because of the high volumes i had and no stop loss. ide always enter a trade with 1000 shares or more and if it went against me ide wait till it came bak. i learnt wen two trades never came back and i lost all the profit i made over 4 months. now im reading adaptive analysis and trade your way to financial freedom which explains everything the people here are tryin to tell you.

anyway cut you losses short and let your winners run.
what i did was cut my winners short and let my losers run,
the gambling does work nicely for a while tho and i loovvveeee gambling


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## skyQuake (4 June 2009)

Clayton, the point is you're taking on craploads of risk. Probability dictates that you will lose your $5k sooner or later, pure standard deviation fluctuation will wipe you out. We're not trying to have a go at you; just that a LOT (if not all) of us have been down that path and have lost the lot.

GL anyway.


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## nomore4s (4 June 2009)

lol, why doesn't it surprise me you're a FP.

Poor risk management - taking on way too much risk for too little reward. And then using a reporting method that inflates your % return but the actual $ return vs $ risked is poor. 
Sounds like a FP to me, any wonder they get such a bad wrap on these boards.

In the CSR trade you are risking over $500 with your mental stops (provided you stick to them) but what is your reward? If you get lucky tomorrow it might drop another 5c or so - you'll make maybe $350 minus fees. You can keep those odds.



skyQuake said:


> Clayton, the point is you're taking on craploads of risk. Probability dictates that you will lose your $5k sooner or later, pure standard deviation fluctuation will wipe you out. We're not trying to have a go at you; just that a LOT (if not all) of us have been down that path and have lost the lot.
> 
> GL anyway.




Clayton if you're serious about trading and being profitable over the long term I suggest you take on board the above post and what some of the other experienced traders here are trying to tell you.
Trading is all about managing and controlling your risk, most of us have learnt this the hard way - maybe you will to.


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## nomore4s (5 June 2009)

clayton4115 said:


> opened another Short with CTX at $12.59, its sinking like the Titanic!




How many shares do you have on this trade?


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## Trembling Hand (5 June 2009)

What is your LOL today?

*L*oss *O*n *L*oan.


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## Sean K (5 June 2009)

nomore4s said:


> How many shares do you have on this trade?



Probably just in the exercise book anyway...


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## beamstas (5 June 2009)

CTX Up to $12.90 and still gunning

Must have had a pretty good "feeling" that it's going down


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## Sean K (5 June 2009)

beamstas said:


> CTX Up to $12.90 and still gunning
> 
> Must have had a pretty good "feeling" that it's going down



Too early to gloat intraday, but it's 'feeling' like an 'oh dear' to me too. Oh dear!


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## prawn_86 (6 June 2009)

So what happened here? A good thread for newbies to read on how not to manage money?


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## clayton4115 (6 June 2009)

i am not going to comment any more on my personal trades, what i win or lose is what i have to deal with, so you all can go suck eggs!


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## prawn_86 (6 June 2009)

clayton4115 said:


> i am not going to comment any more on my personal trades, what i win or lose is what i have to deal with, so you all can go suck eggs!




Clayton,

While it may appear that some members here actually want you to fail, i can assure you thats not the case. Many of the longer term members here  have seen this regularly, a newish member comes along and talks about how well his trades are going, only to reveal the massive risks he is taking. Its not that people want you to fail, its that they know you have a 99.99% chance of failing over the long term with a risk reward ratio like you use.

We have all been in that situation, myself included, and for some reason everyone seems to think they are different to everyone else that lost money originally.

If you are serious about making long term consistenet money from trading the markets have a look through a few threads here with regards to money management and risk:return

Hope that helps a bit.


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## ThingyMajiggy (6 June 2009)

All you have to do is listen. 
Not walk away. 

They are trying to help you.


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## beamstas (6 June 2009)

clayton4115 said:


> i am not going to comment any more on my personal trades, what i win or lose is what i have to deal with, so you all can go suck eggs!






beamstas said:


> 1% of your account per tick
> You'd better have positive expectancy *or you'll be gone by next friday*


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## tech/a (6 June 2009)

Frankly CTX is a good short in my view.
CSR a possibility.
Its the Risk which is perhaps excessive to most.
If it comes off leveraged as he is he will be a genius.
If it doesnt he'll be a failed genius.

Personally I cant see why or how a novice can entertain trading like a MAVERICK and not expect to recieve some flack.

But to answer the question  "How to figure risk to reward (a formula)"

http://www.isigmasystems.com/mm.html

then Click on ARTICAL in the last paragraph.
Particularly *clayton.*

Must go have some eggs to suck.


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## Caliente (7 June 2009)

Clayton - suck in the hubris and listen to the gurus here =)
You are getting a *VALUABLE* lesson here that will save you from getting badly burned like the 95% odd first time losing traders out there who would never get the benefit of the decades of experience that you have here.

Don't look at your CFD account as just an expendable portion of your total portfolio. Be DEFENSIVE. 

Protecting your capital is the key to sustained growth, and if a 100 tick move in one stock will destroy your entire portfolio - that is insane when you are holding OVERNIGHT positions!

PS - if you're looking for a shorting idea, I'd recommend taking a peek at WES. Merrill Lynch have just released a scathing report - it wasn't pretty reading, but as always DYOR.

Cheers
-Cali


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## gav (7 June 2009)

tech/a said:


> But to answer the question  "How to figure risk to reward (a formula)"
> 
> http://www.isigmasystems.com/mm.html
> 
> ...




Thank-you tech/a, I found that link very useful.


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## Boggo (7 June 2009)

Use your own % risk value, example here is based on 2%.

Some other very worthwhile info on this site too...

http://www.incrediblecharts.com/trading/2_percent_rule.php


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## Trembling Hand (9 June 2009)

clayton4115 said:


> i am not going to comment any more on my personal trades, what i win or lose is what i have to deal with, so you all can go suck eggs!




That's funny you were all to happy to throw around your return on margin figures but now that everyone has told you that you're fooling yourself and headed for a quick blow-up you don't want to play.

Well I guess thats something learnt. You must be feeling uncomfortable about the way you are "trading".


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## clayton4115 (9 June 2009)

my trading is going very well, look at CSR, look at CTX, and you thought i was dumb?!?!?!


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## Trembling Hand (9 June 2009)

clayton4115 said:


> my trading is going very well, look at CSR, look at CTX, and you thought i was dumb?!?!?!




Did you not short CTX somewhere in the 12.60s and hold it 3% offside?

Nearly all your margin?


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## clayton4115 (9 June 2009)

yes it will fall further, i cant check my positions as i am at work.


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## nomore4s (9 June 2009)

clayton4115 said:


> my trading is going very well, look at CSR, look at CTX, and you thought i was dumb?!?!?!




Clayton, no-one thought you were "dumb" or that the trades you had on CSR or CTX were bad trades - just that the amount of risk you were taking on relative to the reward and your account size was too high.

You can continue to carry on like an immature little school kid trying to rub our faces in those 2 trades but if you continue to ignore the risks you are taking on it will only take 1 or 2 bad trades to wipe out all your profits or even your account completely.

We have all been trying to help you improve your trading but obviously we have been wasting our time as you seem to know best. I've finished wasting my time trying to help you.

Good luck.


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## nunthewiser (9 June 2009)

LOL..........no further comment needed 


this comment was in regards to holding cfd positions using wide account devasting margins when one is unable to view whAts going on with it 

no offence intended but asta la vista baby


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## beamstas (9 June 2009)

Trembling Hand said:


> Did you not short CTX somewhere in the 12.60s and hold it 3% offside?
> 
> Nearly all your margin?




T/H i think he said somewhere he was trading at $50 a tick? 1%of his account per tick (could be wrong just remember reading it)

CTX has gone to nearly $13.10

Thats like.. $2500! 

If so he is fearless!


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## clayton4115 (9 June 2009)

but im only looking for a few cents change and then exit the trade.


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## nomore4s (9 June 2009)

beamstas said:


> T/H i think he said somewhere he was trading at $50 a tick? 1%of his account per tick (could be wrong just remember reading it)
> 
> CTX has gone to nearly $13.10
> 
> ...




I think that was the CSR trade - I don't think he told us how many shares he had on the CTX trade.


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## clayton4115 (9 June 2009)

ok maybe $50 is too much, i will bring it down to $5 next time.


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## beamstas (9 June 2009)

nomore4s said:


> I think that was the CSR trade - I don't think he told us how many shares he had on the CTX trade.




Ohhh ok, Cheers


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## beamstas (9 June 2009)

clayton4115 said:


> ok maybe $50 is too much, i will bring it down to $5 next time.




Work it out on a risk per trade.. not per tick!
Risk say 1% per trade ie $50

So if you put your stop loss 20c away

Thats 250 shares!


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## Trembling Hand (9 June 2009)

clayton4115 said:


> but im only looking for a few cents change and then exit the trade.




CLASSIC!!

You see no problem with letting a trade go 3 -5% against you then take profit at 0.5%


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## beamstas (9 June 2009)

Trembling Hand said:


> CLASSIC!!
> 
> You see no problem with letting a trade go 3 -5% against you then take profit at 0.5%




You know the old saying
It's only a loss when you sell!!


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## nomore4s (9 June 2009)

clayton4115 said:


> opened another Short with CTX at $12.59, its sinking like the Titanic!






clayton4115 said:


> my trading is going very well, look at CSR, look at CTX, and you thought i was dumb?!?!?!




You're gloating about CTX and it's not even in the money


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## clayton4115 (9 June 2009)

why do i need to gloat about CTX when i made much more ROE on the other ones as shown in this message thread.


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## prawn_86 (9 June 2009)

clayton4115 said:


> why do i need to gloat about CTX when i made much more ROE on the other ones as shown in this message thread.




So far you have only shown us 2 live trades. the rest were hindsight trades that could have been made up by anyone.

Hence we are focusing on the 2 live ones.


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## skyQuake (9 June 2009)

clayton4115 said:


> why do i need to gloat about CTX when i made much more ROE on the other ones as shown in this message thread.




Sure you make awesome ROE, but you do realise a few 'bad' ROE's will wipe you out?

a 70% loss will require a 333% gain just to get back to your original equity level?

You could be 80% accurate with each win twice as great as your loss on average and you'd still go bankrupt.

Eg. start off with $5000

Trade 1: 85% ROE
Trade 2: 85% ROE
Trade 3: -85% ROE
Trade 4: 85% ROE

End result: $4749
Screwed.


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## beamstas (9 June 2009)

skyQuake said:


> You could be 80% accurate with each win twice as great as your loss on average and you'd still go bankrupt.
> 
> Eg. start off with $5000
> 
> ...




Agree with the second part
$5000.00
$9250.00
$17112.50
$2566.88
$4748.71

But im lost on the first part 
If you win 80% of the time and you win twice as much as you lose, wouldn't you have positive expectancy?

Example
$500 wins = $250 losses

$500*.80 minus $250*.20 = $350 expected per trade

What did i miss?


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## clayton4115 (9 June 2009)

i just sold CSR as its close to support, down 6.50% wow! :

made a nice 105% ROE

thank you very much!


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## clayton4115 (9 June 2009)

as i said in my earlier posts, by getting it wrong the ROE is terrible as well,

example 

trade date 29/05/2009
stock 	amp	
Sold Price $4.740	
Units 210.00	
total exposure $995.40	
Margin 5.00%	
my outlay $49.77	
buy date 2-Jun	
Price $4.94	
profit / loss	-$54.00	
ROE -108.50%


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## beamstas (9 June 2009)

clayton4115 said:


> i just sold CSR as its close to support, down 6.50% wow! :
> 
> made a nice 105% ROE
> 
> thank you very much!




ROE, ROM or LOL?


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## clayton4115 (9 June 2009)

CTX -3.00% as we speak / write / ponder / wonder


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## clayton4115 (9 June 2009)

ok these are my shorts for this week, i havent put these as live trades as this week i will be away from my computer alot and wont be able to monitor it

so just for kicks lets see how i go come friday 4pm

current prices and ASX code below

ASX    35.61
WOW  26.20
HSP    4.00

im bearish on the above for the next few days.


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## nomore4s (9 June 2009)

clayton4115 said:


> ok these are my shorts for this week, i havent put these as live trades as this week i will be away from my computer alot and wont be able to monitor it
> 
> so just for kicks lets see how i go come friday 4pm
> 
> ...




*sigh*

You just don't get it do you?

We don't give a rats about your picks, if those stocks end up down @ 4pm Friday what does that prove? Nothing. They could move up 15% but still end up down by 5% on those prices come 4pm Friday - does that make it a good trade? NO but you'll think you're a champ because you picked the direction.

What we are trying to get through to you is - Position sizing & risk management. Where's your position sizing & stoplosses for these trades?

For a FP your lack of ability to understand what we're trying to get across is staggering. Just keep stroking your own ego.


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## Trembling Hand (9 June 2009)

nomore4s said:


> What we are trying to get through to you is - Position sizing & risk management. Where's your position sizing & stoplosses for these trades?
> 
> For a FP your lack of ability to understand what we're trying to get across is staggering. Just keep stroking your own ego.




Why are you surprised a FP cannot understand how to trade/invest/basic use of money.

Classic example of a FP's "skill".


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## clayton4115 (9 June 2009)

Trembling Hand said:


> Why are you surprised a FP cannot understand how to trade/invest/basic use of money.
> 
> Classic example of a FP's "skill".




what would your comments be if i was a stockbroker?


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## Trembling Hand (9 June 2009)

clayton4115 said:


> what would your comments be if i was a stockbroker?




Something like this,

Classic example of why he pushes buttons to move OTHER peoples money around.


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## Mr J (9 June 2009)

I doubt he's a FP anyway. In my experience, this behaviour is typical of 18-21 year olds.


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## skyQuake (9 June 2009)

beamstas said:


> Agree with the second part
> But im lost on the first part
> If you win 80% of the time and you win twice as much as you lose, wouldn't you have positive expectancy?
> 
> ...




Correct. Expectanct is positive but that means jack-all.

In your above example, What if your bankroll is $250?
If you lose the first trade, you're dead. If you win the first but lose 2~4, you're dead.

In clayton's example it would seem more to be a total % of capital risked rather than fixed $ risked.

i.e. You can have a roulette system that wins 99%, but if you try double up every time, you're gonna give it all back sooner or later.



Mr J said:


> I doubt he's a FP anyway. In my experience, this behaviour is typical of 18-21 year olds.




lol sounds about right


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## clayton4115 (9 June 2009)

hey, my strategy is called a clayton's strategy, a strategy when your not employing a strategy.


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## beamstas (9 June 2009)

skyQuake said:


> Correct. Expectanct is positive but that means jack-all.
> 
> In your above example, What if your bankroll is $250?
> If you lose the first trade, you're dead. If you win the first but lose 2~4, you're dead.
> ...




Oh yeah....
But if you are risking say 1% of account (and not crazy amounts like him), then positive expectancy shouldn't fail you.. right?


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## skyQuake (9 June 2009)

beamstas said:


> Oh yeah....
> But if you are risking say 1% of account (and not crazy amounts like him), then positive expectancy shouldn't fail you.. right?




Then you should be fine 
You can probably risk more than 1% of account then if you're doing so well... at least till you become too big for the market


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## beamstas (9 June 2009)

skyQuake said:


> Then you should be fine
> You can probably risk more than 1% of account then if you're doing so well... at least till you become too big for the market




Oh im not talking about me just positive expectancy in general!
I don't think i'll ever be too big for the market, even risking 100%


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## Kez180 (9 June 2009)

beamstas said:


> YOU CANT EVEN CALCULATE YOUR RISK IF YOU DONT HAVE A STOP LOSS




You still have a value at risk, the whole amount....


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## Trembling Hand (9 June 2009)

Kez180 said:


> You still have a value at risk, the whole amount....




Actually its even more than that. This is why its just plain silly. Very easy to have a CFD account go negative, very negative.


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## ojm (9 June 2009)

Mr J said:


> I doubt he's a FP anyway. In my experience, this behaviour is typical of 18-21 year olds.




Hey, don't generalise us younger ones! Most of us on here use risk management. I've learnt lots more than 'cos of you guys. I think Clayton may need to read a book about it. 

This forum recommended Adaptive Analysis by Nick Radge, and that changed my perspective on everything.


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## clayton4115 (9 June 2009)

if you dont believe i am a FP, just go to the asic website, my name is there as a FP.

www.asic.gov.au


i wont give you my surname here if you PM i will give you my surname and you can see my name there.


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## nomore4s (9 June 2009)

clayton4115 said:


> if you dont believe i am a FP, just go to the asic website, my name is there as a FP.
> 
> www.asic.gov.au
> 
> ...




Oh I believe you're a FP alright, probably would have got a job at Storm no worries.


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## Mr J (9 June 2009)

ojm said:


> Hey, don't generalise us younger ones! Most of us on here use risk management. I've learnt lots more than 'cos of you guys. I think Clayton may need to read a book about it.
> 
> This forum recommended Adaptive Analysis by Nick Radge, and that changed my perspective on everything.




I'm not generalising at all as the attitude is typical of someone inexperienced and immature, in trading and in life. You may practise sensible risk management and be very gounded, but most people at this age are not. They have no concept of risk or grinding their way to success. They let early success go to their head, get cocky and think risk is irrelevant for them. I know because I've been there, and have seen many others there. It's an attitude that is usually only lost - if ever - with time and experience, often only from having rough stretches. There was no better example of this than online poker in '04 and '05.

This certainly isn't restricted to just 18-21 year olds; many people diplay this kind of behaviour. However, like any form of immaturity, it's more commonly found in those who are less experienced. If you need an example of adults who haven't outgrown this, check out elitetrader :.



clayton4115 said:


> if you dont believe i am a FP, just go to the asic website, my name is there as a FP.
> 
> www.asic.gov.au
> 
> ...




I believe you, it doesn't make much difference. The fact is that you are not only disregarding risk, you're disregarding all of the advice in this thread. It's usually best to at least consider advice, even if you don't agree with it. While I often come across as if I'm pretending to know it all, I'm always considering other people's opinions as long as they're reasonable. Nobody knows it all, which is why we need to listen to others. They're often as wrong as we are, but there is still usually something to be learned. Just consider the advice of those who have posted in this thread.


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## imiyakawa (10 June 2009)

Okay I've only read the first few posts, but aren't you missing a variable?

Dont you need an estimated probablilty of
a) you hitting your stop.
b) you achieving your objective. 
if your Expected value (mathematical expectation over infinite runs) or a usable risk:reward ratio is to be calculated?

And to do this without arriving at stupid conclusions you'de have to be pretty experienced.

E.G. In the given example (in post #1), your risk:reward would only REALLY be 1:4 if you hit your stop ($4) as many times as you reach your objective ($9).

A more realistic risk:reward would be less than 1:4 imo, at least for traders like me who aren't experienced. For some, it might even be higher than this figure.


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## beamstas (10 June 2009)

imiyakawa said:


> Okay I've only read the first few posts, but aren't you missing a variable?
> 
> Dont you need an estimated probablilty of
> a) you hitting your stop.
> ...




The risk is a percentage of your account
Reward is what you gain on the trade. Risk reward can't be calculated before a trade, only after (unless you use a profit target)

Risk is the entry price less your stop 

so entry $5
stop loss $4
Risk = $1

You sell for $7 after a few weeks
Reward = $2

R:R = 2:1


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## Mr J (11 June 2009)

Agree with Beamstas, R:R represents the value of a losing trade compared to the value of a profitable trade. R:R means nothing by itself, we also have to know the probability of success.



> A more realistic risk:reward would be less than 1:4 imo, at least for traders like me who aren't experienced. For some, it might even be higher than this figure.




I think it's a good exercise for entries. A tighter-than-usual stop forces more precise entries and improves our efficiency. It seems to be very worthwhile for me.


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## nulla nulla (11 June 2009)

The following link is an excellent article on determining risk reward by Darryl Morley:

http://thedaytrader.com.au/27 August.html

Every intending day trader should read this article in determining a "Risk Assessment Policy" for trading.


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## Sean K (11 June 2009)

clayton4115 said:


> ok these are my shorts for this week, i havent put these as live trades as this week i will be away from my computer alot and wont be able to monitor it
> 
> so just for kicks lets see how i go come friday 4pm
> 
> ...



The great thing about ASF is that people tend to share their analysis. 

The fundamentals and/or the technicals.

We're very happy to have negative opinions on stocks, if they are supported by some attempted TA and/or FA. Just attempted, at least.

Very happy for people to post their trades. If they provide some logic. 

If you can't do that, then stick to providing this sort of advice to your paying clients.

Thank you,
kennas


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## beamstas (11 June 2009)

kennas said:


> The great thing about ASF is that people tend to share their analysis.
> 
> The fundamentals and/or the technicals.
> 
> ...




Exactly 
We ain't 60 year old grandmas who don't know better than to listen to advice from a loose cannon FP


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## tech/a (11 June 2009)

OH YEH!!!

Speak for yourself Sonny!!


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## Sean K (11 June 2009)

tech/a said:


> OH YEH!!!
> 
> Speak for yourself Sonny!!



Now, Techy, I really think you should buy some managed funds at your age. Something more stable, providing a regular income.....


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## nulla nulla (11 June 2009)

kennas said:


> Now, Techy, I really think you should buy some managed funds at your age. Something more stable, providing a regular income.....




Go for a quarterly dividend, it will seem like your getting more return on your investment in the time you have left.


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## Temjin (19 June 2009)

nulla nulla said:


> Go for a quarterly dividend, it will seem like your getting more return on your investment in the time you have left.




ok, that's a bit cruel especially on the last part.  

clayton4115, trust us and go read Adaptive Analysis or Trade Your Way to Financial Freedom. You will have a whole new perspective on risk management. I was so close to become a FP and I certainly understood the concept of "risk/reward" from your discipline. (standard deviation!) It's totally outdated and impractical.


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