High Reward to Risk Trade Example(s)

atrader

csw2002

S&P Futures at critical junction
Overnight, ES traded up to 1230.75 and consolidated for about an hour before heading back down when German Finance Ministered dashed any hope of immediate resolution of bank recapitalisation and Greek rescue package within a week. There are 2 possibilities in play here - one extremely bearish and one bullish.

(1) It's a failed breakout during overnight trading. ES did break out the range formed between Aug 4th to Oct 5th by about 2 ticks before heading back down. Under the failed breakout scenario, ES should at least retest the Oct 5th low if not lower. However, as the failed breakout occcurred during overnight trading, volume cannot be used to gauge whether the breakout was reversed on high volume. We may get more idea when the pit opens.

(2) Pull back from resistance before breakout out decisely
I personally favour this scenario as it is unusual to have 2 failed breakouts with 1 at each end for such a mature trading range. For this scenario to hold, we should pull back no lower than ES 1180. I'd be a buyer at 1180 for at least a retest of the range high at 1230, if not a breakout. I would put my stop at 1170 and gun for 1230, making it a 5 to 1 reward to risk trade.

NewMember

csw2002 发表于 2011-10-17 08:57
S&P Futures at critical junction
Overnight, ES traded up to 1230.75 and consolidated for about an h ...

Thank you!  Enter at 1180 for a second upward breakout try.  A clear plan.

cat2011

Thank you very much for your contribution

csw2002

I forgot to add that ES 1180 is the bottom of the high volume area since Wednesday and acted as support on Thursday. Hence it is logical to consider going long in that area.

silicon_beaver

Like to read your analysis, with examples.

btw, your morning posts are also very help.

dsp

Thanks. waiting for re-load in ES 1180 or SPY???

benbendan

csw2002

S&P future closed today above 1230. Today is OE and pit was relatively quiet. I have my doubt about whether it is a genuine breakout or not. However, the end of the day ramp appears to make the breakout genuine.

There are again 2 main  possibilities at play for Monday - range extension and then reversal. We have a mature consolidation range between 1184 to 1230 (roughly 50 points). Typical range extension is in the vicinity of 10%, making 1235 high a possible top of this move. If we close Monday under 1230 then the probability of a full retracement of the smaller degree consolidation range from 1184 to 1230 is very high, and a full retracement of the 1100 to 1230 range a much higher probability event move as well. Depending on where we close under 1230, it may become a very high reward to risk trade (and possibly an even high probability trade).

On the other hand, if there is no weakness on Monday and any retracements to 1230 - 1235 are being bought, then we would be in a trending move to the upside (or vertical development in market profile speak). I would look to enter with the trend. Unfortunately, during such trending moves, it is hard to gauge a target, making reward to risk calculations difficult. There are 2 possible targets that I can see: (1) we will trade up to 1250 to 1280 mature consolidation region (formed between 10th June to 28th June). Most likely stopping price is middle of this range. If we do reverse from here, then I'd give the market a very high probability of being in bear mode. (2) we will trade up to the larger consolidation range between 1250 and 1350 (formed between March and July). Most likely stopping price is the 1300 middle of the range. If we do get up to that level, then bullish scenario will likely prevail and further upside possible after some retracement.

quix

csw2002

Per my analysis on Friday, the market developed vertically to the edge of the 1250 and 1260 area before 2 sided actions came in. I don't have any good tell as to whether we will continue to trade higher into the my next target around 1300 area or reverse lower.

However, regardless of the bearish and bullish scenario, we are in a region offering good reward to risk trade. I expect we will develop a consolidation range between 1230 to 1260. If you are a bull, then you should buy any retracement into the 1230 to 1235 region. If you are a bear, then you should sell any move into the 1255 to 1260 area. I expect the consolidation to last 3 to 4 days before deciding which way to go. Given the range is 30 points and risk is approximately 5 points, both bull and bear trades from the edge of the consolidation range will offer very high reward to risk trade.

Market very very rarely reverse-V tops, and hence the top of the 1230 to 1260 region will most likely be revisited. On the other hand, market does have a tendency to v-bottom, and hence bulls would need to be quick to get into the trade from bottom of the trading range.

csw2002

What did I say a couple of days ago? Market tends to v-bottom, but not reverse v-top. I think we have seen ample evidence of this behaviour over the last few weeks. Now I believe we have just a momentum peak of the current rally using various measures of momentum - but price peak is yet to come. Again, whether you are a bull or a bear - wait for a mature consolidation region to form before placing your bet. Look for failed breakouts or momentum divergence to enter, and always use stop loss.

silicon_beaver

回复 csw2002 的帖子

loaded FAZ calls Friday. I would see what to happen.

George25

西安

best wishes for you.

cat2011