Risk & Reward is half the Trade…

I have been trading Stocks and options for over 15 years now. Not going to get into life long lessons here, or what were my mistakes. But one thing that I feel is most important, which I have been practicing for sometime now is — Risk vs. Reward. Any trade opened has 50:50 chance of profit or loss. What you can do to skew the outcome towards your favor is find set ups that have a risk to reward ratio of 3:1. That is for every one dollar you risk, you expect to make Three. Being a technical trader, let me give you an example of a recent trade I made.

Trade Setup:-Risk $150 to make $450 (ratio of 3:1)

The chart that showed up on my scanner.

As you can see Mueller Industries (Ticker: MLI) was on a downtrend on a daily chart, and showed support at its 200 Day simple moving average. the stock started to consolidate there for few days with an increase in volume.

This was a good set up from Risk/Reward perspective. I could enter at $31.75 (13-Day Exponential moving average — something I use personally), and expect the stock to go towards $34. Stock-loss was just below 200 day MA around $30.75.

Took a starter position of 150 shares as the stock managed to close above its 50 EMA in an hourly chart.