The answer, as we'll show in this article below, is yes. The frequency? More than you think, just not in the terms that most of us are used to doing: Buying a stock when it's 'cheap' and holding it for 3 years "because at $3 a share how much lower can it really go?" - The answer, much lower, even zero. So let's break down how to find low-risk and high-reward trades with a review of a $2,285 gain on Priceline below.
Price Zones Matter
The first thing students in Core Foundations of Trading learn when putting on a trade is to find where the potential price entry area is (Price is an Area not an exact number) and then second, where three price targets are. In the chart and trade below we have an example of a low-risk entry on Priceline, two in fact, with the second test being the A+ entry.
In this example there were a few ways to trade this. I elected for a long directional call option that cost $2.15 netting a healthy profit of $2,285 in two days.
Now as I mentioned above, once you find an optimal low risk to reward entry on the chart you can then choose the optimal product/strategy to execute on that idea. In this case, it was a directional call option, with a max risk of $215.
Therefore, we not only minimized our entry risk (on the chart) but also the trade risk (through a fixed cost) through a call option. This is as good as trading gets from a risk/reward standpoint.
Speculation in asset classes is just that, speculation. However, we can provide ourselves with an edge to minimize risk and unlock large potential upside trades using the correct tools. The one question I found myself asking students at our free and Trading 101 classes in 2017 was: "On the last stock you bought, what is your exit price and stop?" The answer, usually was, the simply didn't know.
As investors our number one job is to manage risk at the end of the day, not to have opinions on why a stock should go up or down, so ask yourself before you take the next trade whether or not it's low risk and high reward scenario.
I hope this helps and here's to a profitable and educational 2018 for everyone.