Thursday, June 21, 2007

Trade: RIO and Entry Point Precision

I bought 500 shares of RIO at $44.65. This is a simple "trend pullback" trade. The stock has been on a steady trend that has bounced off of every pullback to the 50 day moving average. I am a bit concerned about the heavy volume on this pullback, so I will use a tight stop at $43.50, which is just under the 50 day moving average. My target is $47, the old highs, which gives me a better than 3:1 reward to risk.

Lately I have been receiving e-mails and comments about precise entry points. While I try to be a bit more precise on breakouts, when it comes to pullbacks I don't worry so much. As long as I've got a good risk reward, I'll enter. For example, yesterday I decided I would enter RIO if it was within a point from the 50 day moving average. This morning when I checked the quote, it was at $44.60, so I decided to enter. Nothing too complicated. No 30 minute charts, candle patterns or fibs.

Sometimes I think we tend to over complicate things. I do have some day trading strategies that are much more precise. However, when swing trading with a goal of 2-10 points, waiting for a few nickels and dimes doesn't amount to much, and can keep you out of good trades.


Anonymous said...

please explain "3:1 reward ratio:


Anonymous said...

do you still hold SYNL?

The Market Speculator said...

SYNL: no, my trailing stop was hit at $46.

reward/risk: The risk is how much you are willing to lose. If I buy at $20, and my stop is at $18, I am risking $2. For a 3:1 reward to risk, my target would have to be $26.