I have just traded out X stock for a 16% increase of trading capital. I have been long X since the beginning of testing a swing trading strategy and X stock was one of the best performing stocks of the portfolio right from day 3! I picked the entry point on the support level and bought 200 X shares for $19.25 and today I sold them at $23.24. I couldn’t think of a better example showing stock trading between support and resistance levels.
At first the stop loss was set at $18.75, risking half a dollar per share for $100 risk. Given I paper trade this strategy, quoting a profit or loss may sound meaningless but I am going to invest real money, depending on the profitability of the strategy. That is why I follow specific rules while I’m testing the swing trading system. By setting my risk at $100 and willing to invest $5,000 when the time comes, I am risking 2% per trade. Therefore, trading out today for $4 reward per share resulted to $800 profit or 16% of the $5,000 trading capital.
Effectively this trade had a reward-to-risk ratio of 8-1 in just 2 weeks’ time, since I risked $100 and the final reward was $800! Now, if only the rest of my stock portfolio performs the same way! Like HOV stock for instance (up 8% today!).