Risk Management Risk vs Reward + Tight Trade Mgmt.

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Risk & Reward Overview What is Risk?  The amount your willing to lose in a trade  The distance between your entry & stop loss.  The cost of doing business (commissions)  Emotional trading/Chasing trades/Not following your rules  News volatility/session opens & closes What is Reward?  The profit potential on each trade  Setting appropriate targets based on what the market allows  Understanding risk/reward (0.5:1/1:1/1.5:1/2:1/2.5:1/3:1) profit objectives  Understanding statistical profit objectives (backtesting)  Following rules & participating in risk free trades We Will Trade For:  Small Wins, Large wins, Small losses & Break/Evens  NEVER LARGE LOSSES!

The Risk/Reward Trade-Off Option 1:  Less risk than reward (Ex: $1.50 or $2.00 reward to $1.00 risk)  We have to be right less  We need larger winning trades to make money.  Win less but have larger profit targets Option 2:  Less reward than risk (Ex: $1.00 or $0.75 reward to $1.00 risk)  We will have smaller gains with each trade  The possibility of trades working out increases with closer targets  Requires a (higher winning %) to profit consistently.  Win more but have shorter profit targets

Option 1: Reward > Risk

Option 2: Risk >/= Reward

Advanced Risk/Reward – Tight Trade Mgmt.  Planning trades around Risk/Reward involves: Trade selection/Proper planning Tight risk management Increased opportunity Risk tolerance Skill set/practice Market temperament  Opportunity will exist when (Risk > Reward) or when (Risk < Reward).  You will need to set a (R/R) plan that suits you! Example: If your (R/R) plan is ($1.00/Risk to $1.50/Reward) minimum, this means you will always strive for (Reward > Risk). Advanced participation: If you identify a trade setup that doesn’t meet your (R/R) plan, you can still participate by using tight trade management. This allows you to protect your downside risk, while allowing for an opportunity to try and reach your (R/R) plan.

Advanced Risk/Reward – Tight Trade Mgmt. Ex: #1

Advanced Risk/Reward – Tight Trade Mgmt. Ex: #2