Thursday, May 24, 2012

Risk and Reward

On Tuesday, I had taken a breakdown in the Nifty which I discussed in this post.

The trade was to go short and cover at 4820 which was a pattern target. Since the market was closing, we exited at 4830.

A question was asked: why did we exit if the market remained weak. We should have carried the position overnight.

Here is my answer:

First, consider my rules. The rules have a profit target. We must follow our rules honestly.
Second, I could have waited for the next day since my target of 4820 was not achieved. To obtain another 10 points of rewards (4830 minus 4820) I was likely to incur significantly higher risk. The risk reward ratio was quite unfavorable.
Third, It is my perception hat we are entering a choppy market. If this is so, we will see lower close and higher open, then higher close and lower open. For this reason, it is best to trade with care.

4 comments:

Jitender Yadav said...

Respected Sir
Very well said sir, "we must follow our rules honestly". In the trading business as well as in most other parts of life our biggest enemies are our inner demons like greed, fear,laziness,revenge and many more. To save ourselves from these inner demons we need to set some rules and then follow them diligently.
Your Fan
Jitender Yadav
New Delhi

Rushabh Shastri said...

please guide me if I wrong, in analysing the wave theory...My study says reversal from today's low of 24/05/2012 if maintain it will complete big corrective phase of fourth wave...and holding this point can lead to new high for market to complete its fifth motive waves.

logan said...

sir I have short doller@ 46 till now I m paying m2m and I almost lost 20 lacs ..will doller come 50 any time this year so I exit my potision ??

vijay said...

great