Latest new post for members only issued on April 23, 2010. Fill signup form below to access it instantly.

Friday, June 6, 2008

Stock Trading Question: Risk vs Reward, Which of These Two Trades Would You Take

Latest new post for members only issued on April 23, 2010. Fill signup form below to access it instantly.

New Policy: To Read The Market Analysis Reports Generated By Our Proprietary Models,
You Now Need to Subscribe. Fill Form Below. Subscription Is Free.
Get Instant Access to the Latest Report, As Soon As You Submit the Form Below.
NOTE: You will also receive access to hundreds of articles on this site. The articles are not visible on this page.
I am about to the post the following question to a forum known as a hanging place of traders. The question is below. The question is important, and I will see how the people there handle it. Like a professor, I have the answers, but the purpose of the question is to teach in more depth some fundamental questions. I posed the question I noticed that a larger number of people do not really understand them deeply.

The post will be:

Trading is difficult. But let us see if it is that easy even in hindsight. So I have these trades for you to ponder, help us understand, and pick your trades.Experts we need your help on this one (risk, reward, and information value).

In hindsight everything is known. But let us consider an incomplete hindsight. To make the case a bit concrete, let us say that there is a One Stock House around the corner, where you can go do some "trading" because you cannot trade during the day. You have no source of information whatsoever, except what the house gives you.

There is only one stock that you can trade. You can either go LONG the stock, or Short the stock. You are always given the Open price. You do not know anything else except what will be given to you in the questions below.

The Stock Open price is $10.255. The Closing price is unknown. The gain and loss (except when otherwise indicated) is the difference between Closing Price and Open Price. The One Stock House gives you the High Price and the Low Price of the stock which are $10.18 and $10.28.

1. Question 1: What is the reward/risk ratio if you were to go long or short the stock?
2. Question 2: Would you go long the stock or short the stock?
3. Question 3: In two separate corners of the House there are two sources named LS and SS (LongSource and ShortSource) from which you can drink a healthy liquid which gives its drinker an edge on the probability of the stock closing higher or lower than the Open Price. You can drink only from one source, and it is free (before your start dreaming, the liquid is not beer).Which source will you drink from?
4. Question 4: The One Stock House has another play for you. You can drink from one of the two sources, but you have to long the stock if you drink from the LS source, or short the stock if you drink from the SS source. You and the house then replay the time-sales tape. You have to put a trailing stop on your trade whether long or short.Would you drink from the LL source or the SS source?
5.Question 5: If you were to help the House put a price sticker to the LL source and LS source, would recommend a free service or a premium service for these sources and why?

Feel free to answer just one of these questions or to simply comments on them without any answer at all.

To Receive Market Forecasting/Timing Reports, and Other Special Trading Reports: Enter your email address in the form below, and click submit. Your subscription is at no cost to you and you can unsubscribe at any time. You will receive our special market timing reports, trading reports, and other specials available for members only. We reserve the right to withdraw or terminate this FREE subscription offer at any time. Therefore, secure your subscription now as we do not guarantee that this offer will be available at your next visit to this site.
Happy trading,


Post a Comment

Subscribe to Post Comments [Atom]

<< Home

Privacy Policy