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Understanding risk to reward ratios in trading:
How to calculate how many shares to buy and your minimum price target of a trade
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How to calculate how many shares to buy and your minimum price target of a trade
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The first and most important thing to identify is how much money you are comfortable losing in one trade
Personally, I don't risk more than 1% of my trading portfolio
That means it would take 100 straight losing trades to lose my entire portfolio
Do what is comfortable for you
Personally, I don't risk more than 1% of my trading portfolio
That means it would take 100 straight losing trades to lose my entire portfolio
Do what is comfortable for you
Next you need to decide where to put your stop loss (the price you get out of a trade if the stock goes down)
Putting your stop loss at a level of support is a good strategy
Use this chart of $FB for an example
It has bounced up at $245 twice in the last 7 months
Putting your stop loss at a level of support is a good strategy
Use this chart of $FB for an example
It has bounced up at $245 twice in the last 7 months
Now you need to decide your entry
There are a lot of strategies for how to enter trades
I suggest taking a look at Chris Johnson's course, Stock Market Gems to understand finding entry points
You can check that out here
https://gumroad.com/a/541455475/IDaKd
There are a lot of strategies for how to enter trades
I suggest taking a look at Chris Johnson's course, Stock Market Gems to understand finding entry points
You can check that out here
https://gumroad.com/a/541455475/IDaKd
After you've decided your risk, stop loss, and entry, all you need is a little math to determine how many shares to buy
The equation is
# of Shares = Risk÷(Entry-Stop Loss)
The closer your entry is to your stop loss, the more shares you will be able to buy
The equation is
# of Shares = Risk÷(Entry-Stop Loss)
The closer your entry is to your stop loss, the more shares you will be able to buy
Unfortunately, you don't win every trade, this is where it is important to set a risk to reward ratio
Many people strive to make $3 for every $1 they might lose or a 3:1 ratio
Now you only need to be right more than 25% of the time to make money
Many people strive to make $3 for every $1 they might lose or a 3:1 ratio
Now you only need to be right more than 25% of the time to make money
To calculate your price target (PT)based off a 3:1 ratio you can use this equation
PT = Entry + 3*(Entry - Stop Loss)
Some price targets are realistic for a stock to hit within a few weeks
Others are not
That is why it is important to study charts and strategies
PT = Entry + 3*(Entry - Stop Loss)
Some price targets are realistic for a stock to hit within a few weeks
Others are not
That is why it is important to study charts and strategies
Learn more about this from the 
himself
Get whiteboard magic and start making money as a trader today https://gumroad.com/a/541455475/WbZVZ
himselfGet whiteboard magic and start making money as a trader today
https://gumroad.com/a/541455475/WbZVZ
