Risk Assessment

[cpatte7372]

Hello,

Can someone please, please tell me if the following makes sense:

Tomorrow I hope to trade coca-cola on the following basis:

Entry: $27.05

Stop: $26.50

Nr of Shares: 45

Risk: $25

The price closed at $26.91.

My R/R ratio is 1:5

In order to achieve my R/R of $37.50 the price has got to appreciate by 3.49% or $27.88.

Now, Alex helped me write a script that will work out the price range as percentage - high-low/close*100. Range today was 26.99-26.50/26.91*100 = 1.82%. Over the last three day the range never exceeded 3%.

My question therefore is, do you think my expectations of realising 3.49% in one day realistic considering that the range hasn't exceeded 3% on any given day all week?

I'm basically trying to assess whether risk is worth it.


I would really appreciate some feedback on this.

Cheers

Carlton

[mooseman]

Your expectations must be founded on something to begin to be realistic. Any particular day could and is likely to be within the average of a bunch of recent days. Some use average true range over multiple days. Doesn't matter until you try to fine tune a strategy and you want to know statisitcally what works best for your specific strategy. If a stock rarely moves $3 in a day or 3% then what strong reasons would you have of it happening on the day you trade it? Some folks look at the average movement and would target a smaller % of that. So if a stock average move is $3 maybe you set your target for $1.5 or $1.75 or $2. All based on your strategy. If your target is statistically going to fall in the average range then you might statistically expect higher win to loss based on that part of the strategy of course. Think of it like a gambling game, say roulette. If there are 35 numbers and you get 1 bet your odds are not as good as betting red where your odds are near 50%. Placing a target outside of the norm without good reasons today is not normal will statisitcally go against you.
Dave

[cpatte7372]

mooseman,


That is such good advice.

I completely agree with your supposition. It really good to hear someone state what I'm thinking.

You did give me a new outlook when where you say

So if a stock average move is $3 maybe you set your target for $1.5 or $1.75 or $2. I will definitely take that on-board.

Thanks for your insights mate. I truly appreciate it.

Cheers

Carlton