Mar 17th 2019, Silver Chartbook

Risk versus Reward

Silver prices advanced further from last week´s chart book review.

Now what? The question is: “How much for how much”?

Risk versus reward is likely the most overlooked and misinterpreted part of trading. The most common approach of R/R by technical analysts is to set an expectation prior to a trade entry. A relationship between entry, stop and target price.

It leaves completely out what actually happens in the market thereafter. No matter if you use advanced methods like chandelier and parabolic sar, or standard ones, like percentage trail or price increment trail stops, they all simply leave true probability equation of actual market behavior, for the most part, out. As a result stops are most often placed to tight and exits are far from ideal. Lets illustrate on this weeks market behavior one exit strategy that is principle based and rather maximizes profits according to actual market behavior.

We are long two positions, silver and gold, and have captured sizeable profits on each position with having taken off 75% of position size on each trade.

So we are left with two runners (the last 25% of a position), one in gold and one in silver.

When Gold hit a strong resistance zone on its daily chart, we aggressively exited the gold position in its entirety:

Gold in US Dollar, daily chart as of March 17th 2019 a

Gold in US Dollar, daily chart as of March 17th 2019 a

Prices advance a tiny bit more that day, but took out two days of profit in the consecutive session:

Gold in US Dollar, 60 minute chart as of March 17th 2019 b

Gold in US Dollar, 60 minute chart as of March 17th 2019 b

The daily chart shows even more drastically, “how much” would have been needed to risk in regards to a wide stop, for possibly locking in larger profits.

Any of the previously named stop methodologies would have been taken out and minimized returns.

Gold in US Dollar, daily chart as of March 17th 2019 b

Gold in US Dollar, daily chart as of March 17th 2019 b

The aggressive profit taking on a market related position leaves us with the needed degree of freedom. It provides our silver runner the room to breathe for a possible second leg.

This positions stop is still resting at break even entry levels. If getting stopped out now on this 1/8th of total position size of both gold and silver position combined, it is virtual meaningless. Should a trend continuation evolve on the other hand, from these price levels here, even this relatively small amount of money exposed to the market, can contribute substantial additional profits. Let us point out that we kept the silver runner versus the gold one for a reason. Looking closely you can identify that silver actually had broken already some resistance above (red line).

This makes it as such the preferable choice:

Silver in US Dollar, daily chart as of March 17th 2019 a

Silver in US Dollar, daily chart as of March 17th 2019 a

Our silver position had a mutual strong decline like gold the following day, and partially bounced on Friday the 15th of March:

Silver in US Dollar, daily chart as of March 17th 2019 b

Silver in US Dollar, daily chart as of March 17th 2019 b

The true meaningfulness of a bit more complex exit strategy, versus the one of a preset indicator, is the psychological degree of freedom it creates for the market participant. It allows for ease of execution. And with more choices created, an alignment along the markets. So it truly allows for profit maximization without sleepless nights.

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By | 2019-03-17T16:35:15+00:00 March 17th, 2019|Tags: , , , , , , , |1 Comment

About the Author:

Outstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent.Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.


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