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How to Calculate Good Risk Management

Posted June 27, 2008

“I always look at the risk/reward relationship before entering a trade. It doesn’t matter whether it is a stock trade, an options trade, or a futures trade.” — Rick Pendergraft

by Rick Pendergraft

Baltimore – (TFN): One of the investing basics that all investors need to know when making an investment decision is risk management. You must understand the risk/reward relationship of every trade. But just because it’s basic and necessary doesn’t mean you know how to calculate one. Today, I’ll show you.

I always look at the risk/reward relationship before entering a trade. It doesn’t matter whether it is a stock trade, an options trade, or a futures trade. You must understand basic risk management before you make the call. The first thing I look at is the risk. And I always have a stop loss point in mind to protect my investment.

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Stock Market Shocker: How a Bunch of 5th Graders Made Fools of the Trading Elite…!

Wall Street wants you to believe that you have to entrust your money with the professionals and all their skills, resources and systems, if you want to make money in the markets. It’s what these guys do for a living! How could you possibly beat them?!

Nothing could be further from the truth. In fact, I have used an embarrassingly simple secret to make $15,048 in just 30 days… and boost my overall account balance 152% in less than a year.

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Here is an example: A recent short-term stock trade I analyzed with my colleague Andrew Gordon…

The stock was trading at $86 at the time. A good stop loss point would be a move below the 50-day moving average, which was at $84. If that happened, our loss would be in the vicinity of 2.5 percent. The chart showed clear resistance at the $96 level, so our target gain was $10 or 11.6 percent. Read on to learn more.

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Posted by Rick Pendergraft · Filed Under Investment Strategies 

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