Forgotten Sector Wakes Up and Finds Buyers 5-27-20
Risk-reward ratio. It's the magic variable for many stock traders.
Winning percentage is a close second. (Very misleading statistic)
It's nice when traders decide to only take trades with a risk-reward of 3-1 or better. It makes sense. Take 1-1 trades and you become a break-even trader.
But here's the problem for many smart, hard working traders. They have no idea if the reward will be reached. They don't have an edge that says "YES! The ODDS of that target being hit are great."
So they end up placing trades that have no chance of being profitable. Then later they can't figure out why it was another mediocre month.
I call this trade expectation. It's knowing the odds, the probabilities of your profit target being hit, versus your stop loss. It means going a little bit deeper into your analysis and really asking if the profit potential justifies the risk.
Today's trading lesson gives some insights into mastering this key trading skill.
The stock market closed net positive yesterday but many stocks closed below the open.
WATCH: Best Stock Picks Today
This sets up a battle this week between profit-taking and fresh buying.
Most of the tech stocks we have traded the last six weeks could not find a bid. PYPL stock price hit all-time highs and then got pounded with selling.
Today we are looking at a popular sector that's been bearish and or neutral at best. Also a detailed trade in a stock I'm looking to buy today that has $45 in profit potential of the next 3-5 days.
Have a great day!