Online Stock Trading Tips

This is tutorial regarding the analysis to a trading system and its relation to expectancy as well as the risk to reward ratio. This tutorial consists of the important financial equations that the trader needs to know. This is equation 1 which the standard formula for computing trading expectancy:

Expectancy = (%win * average win) – (%loss * average loss) (equation 1)

Supposing:
Risk/Reward ratio is 1/3 then Average loss/Average win is 1/3. Risk to reward ratio varies from one trader to another. Some will target 1/2 or 1/5. 1/3 is a common standard.

Then equation 2 is:
average win = 3* average loss (equation2)

Supposing the trader is targeting $100 net profit per trade. So this equates expectancy to $100
Also:
%win + %loss = 1

Then equation 3 is:
%win = 1- %loss (equation3) (more…)

The good way to enter a trade is to have lowest risk and maximum reward as possible. Or it can simply be stated as a “low risk-high reward” trading scenario.

A lot of traders commonly those that are beginners which does not have sufficient background when it comes to money management became too excited with fundamental and technical analysis methods that they fail to assess the risk and reward of a certain trade.

As a result, they always made little profits and incur big losses which are not key ingredients to long term trading success. Stop loss should be design to limit losses and maximize profits.

This short tutorial will teach you how to compute stop loss price based on your acceptable risk to reward ratio given the stocks current market support and resistance level . The following are variables you should have: (more…)