Re-entering a trade at a lower price with higher R:R potential - Aussie Stock Forums

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  1. #1

    Default Re-entering a trade at a lower price with higher R:R potential

    Trading my simulator this morning I made an interesting observation.
    The first chart is "Trade 1" in my sequence of trades:

    TRADE 1

    My analysis was as follows: Price has broken out of a basing pattern. The termination of the down move was marked by very high volume and it looks as if a period of accumulation has occurred with high volume and price on the springboard. There is a very clear pattern of price increasing on rallies and declining on corrections.

    Position size: $10,200
    Initial stop: 9.8%
    Risk of capital: 1%
    Stop: I was taken out of the position by my time stop. (It didn't move up quickly enough).
    Profit/loss: -0.4R

    CLO trade 1.png

    TRADE 2

    Volume decreasing on the decline. It looks like there is a lack of supply as it approaches the high volume area (red rectangle). Stop is placed under this area.

    Position size: $14,700
    Initial stop: 6.8%
    Risk of capital: 1%
    Stop: Time stop
    Profit/loss: -0.2R
    CLO trade 2.png

    TRADE 3

    It attempt one more entry. This entry is much closer to the initial stop I used in the other positions which still makes sense from a technical point of view. It is now right near the upward trendline which has begun. If this one takes off as expected there is very strong R:R potential. Position size isn't crazy either so a good potential trade.

    Position size: $21,500
    Initial stop: 4.7%
    Risk of capital: 1%
    Stop: discretionary stop
    Profit/loss: 5R

    CLO trade 3.png

    So things panned out well with me being stopped out twice. I only lost 0.6R on 2 trades combined and the low risk, high R:R entry on the 3rd trade allowed me to make 5R profit, which I wouldn't have made if I wasn't stopped out of the first position because the initial stop was much larger.

    Obviously if the last trade was stopped out at the initial stop it would have been a total of 1.6R loss. But being particularly confident with my analysis I felt the low risk entry had strong potential.

    The one downside is that it is much more emotional handling a trade when the initial stop is lower, as much profit can be given back if held too long.

    Is this one of the keys to having large R-multiple wins? To enter trades in low risk areas, rather than entering, say on a strong breakout, where the initial stop is further away from the entry price?

  2. #2

    Default Re: Re-entering a trade at a lower price with higher R:R potential


    I think my reply (The first one today) answers this question in directly.



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