Long trades in many stocks recommended in our pull back section are getting filled. Markets are pausing from their good rally that began with the New Year on the daily charts, while its trade time on the strongest stocks in the weekly charts. As the stocks go weak on the daily charts and move down, it approaches the value zone on the weekly charts. Not all stocks are traded long on their pull back to value. Only those stocks that have great strength in their price moves, which have formed into a good trend are valid buys.
There are chances that some of them can hit stops and give us losing trades, even with a good bullish strength built in them. Any trading system for that matter is not insulated from loosing trades. It is the ‘Cut your losses faster and run your Profits longer’ that pays rich returns in the long run. Markets always go into cycles and when one time frame is weak, it gives opportunities in the next higher time frame. Keeping our risks lower and going ahead into trading the system generated calls without second guessing will ensure that we are protected, from our account going into a loser.
While we keep the risks lower, we get huge opportunities to spread our capital across various segment of stocks which gives us a good diversified portfolio. Hence, if a few of them get into losing trades, still we have a fairly good chance of having the winners take care of losses. The minimum requirement for this process to happen is, that all our trades should have their targets above 3 times the risk involved. In the current markets, there are many stocks that have their rewards as high as 11 times the risk on their trades. So, on an average it would come to about 5 times reward to risk which is a fairly good return on our capital, when we run up the winners to their targets.
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