How to figure risk to reward (a formula)

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!!!

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 ?

nomore4s · 3 June 2009

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

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.

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:

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.

beamstas · 3 June 2009

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

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

nunthewiser · 3 June 2009

beamstas said:
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

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

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

nunthewiser · 3 June 2009

beamstas said:
LOL it comes out at $499.40

Anyway does that even apply?

I can buy under $500 with IB

:S

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 ...

skyQuake · 3 June 2009

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

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

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

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.

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,

Return On Inadequate Margin to justify you silly position sizing.

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.

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%

clayton4115 · 4 June 2009

still short MAP waiting for it to hit $2.20

beamstas · 4 June 2009

clayton4115 said:
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%

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

How to figure risk to reward (a formula)

clayton4115

nunthewiser

nomore4s

Commonsense isn't that common

clayton4115

nomore4s

Commonsense isn't that common

skyQuake

beamstas

beamstas

nunthewiser

beamstas

nunthewiser

skyQuake

ROE

beamstas

clayton4115

Trembling Hand

Can be found on the bid

nomore4s

Commonsense isn't that common

clayton4115

clayton4115

beamstas

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