My risk reward strategy may appear complicated. I assure you I am not smart enough for my strategy to be both complicated and effective. I scale in and out of my position and trade around my core position. I look for 3-5 opportunities depending on markets conditions.
My goal of any trade is to hit for the cycle but I will always settle for singles if that is what the market gives me. A cycle refers to a baseball player hitting a single, double, triple and home run. The first exit is always .75 to 1.25. The next exits will be pre-determined by how many contracts were filled. If not all of my prices are filled it usually means it is a great price and I can expect more. I attempt to enter across three prices, 40%-20% of max position, 40% on next, 40%-20% on last. First price is aggressive, second is my target price and third is to make the heat worthwhile.
Swing money is calculated by closed profit + decreased to max risk. For simplicity let’s assume I am long from 1 price a 10 lot with a 2 point stop, exiting 20% at a time. My total risk is $1000. If my first target at .75 points is filled, the single, I have now made $75 and a total of $175 in swing money. If my stop is hit the most I can lose is $825. If my second target at 1.50 points is hit, I will made $225 dollars. At this point I will move my stop, let’s say to 1.50 points. I am long 60% of my position. Profit is $225 and swing money is $550, open risk is $450. If my third target is hit at 2.00 points I now have a profit of $425 when I move my stop to 1.00 point the least I can make is $225.
There are disadvantages to this strategy. If my price is really good I may only get 40%-20% of my max position. I am slightly on the other side of being comfortable in current market conditions with the risk. This forces me to be very selective about my entries as I can only get stopped out twice before I am near my limit down.
By having multiple entries and exits I have an opportunity to buy and sell best ticks. That is the key to successful trading, getting out on the best tick. Not giving too much back. If the market was only providing 10 point rotations this strategy is not as good as in a 3 to 5 point rotation.
If you are new to trading your goal is extend your time, it is not to win. Even if you do not have the account size or experience to scale in or out you can still look at swing money. For example if your total risk for the day is $300 and on the first trade you make $50 the most you should lose on for the day is $250, etc. Money is time in trading.
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