How do we trade an idea that offers more risk than reward?
The simple answer to that question is, “We don’t.” But that doesn’t mean we can’t.
What you need to do is wait for a retest of the area where the trade was triggered to see if that area holds and price action remains reactive to it.
Now, that doesn’t guarantee that the trade will work in your favor.
But you must dial down the risk and amp up the reward to even make the opportunity viable.
Recently the Gold Futures (GC) market triggered a sell signal on a weekly basis…
But there were two problems… First, the risk outweighed the reward. And second, it was a countertrend setup.
So, at the moment of the breakout, it wasn’t such a sexy setup. But it got better with time.
Price action actually traded against the breakout to retest the structure that originally triggered the trade.
The beauty of that was you were able to enter this trade if you wanted to with very little risk and a whole lot of potential reward.
Remember, it doesn’t necessarily mean it’s going to work out for you. But it’s a heck of a lot better setup than the original!
When price action tested the structure above the original breakout, it offered you an entry with less than 1% of risk and nearly 6% of reward.
Now those are odds I can rest easy on!
No Holy Grail
The chart above tells the entire story. Now, keep in mind, what’s imaged on the chart is the original setup.
But you can see that the price retraced and “kissed” the structure above nearly to the penny before falling again!
Again, it doesn’t mean that this trade is going to work. Don’t get all fired up thinking we’ve found the holy grail… because we haven’t.
But if you’re going to consider a not-so-sexy trade from the get-go, give it a chance to see if the price action offers you something better…
Sometimes you’ll get lucky!
Join Us for a Special Alpha Stocks Session
Before I go, I want to personally invite you to a special LIVE presentation with my colleague and expert stock trader Ross Givens.
Ross’s premium Alpha Stocks research service focuses on only the very best stock trading opportunities — both on the long side as stocks rise and on the short side when markets are crashing.
He recently recorded a huge winning trade on the downside in only eight days as Pegasystems Inc. (PEGA) stock plunged…
Rules to Live By
“I’d rather be hated for who I am, than loved for who I am not.” Kurt Cobain
Until next time, I wish you a beautiful and blessed day!
Yours In Trading Success,
Anthony Speciale Jr.