Managing Market Risk Reward With A Real Life Example In ORCL

Welcome back everybody! I hope you are have a great day post-FOMC. I want to talk about something that came up this morning. There was a potential trade opportunity in Oracle.

Ideally three to one or better risk to reward ratio is good. That is a filter for me. I ask myself, what is the likely move? If it doesn’t allow for a 2 to 1 risk to reward ratio, it might not be for me.

When Oracle gapped down yesterday, that opened up a really good opportunity from a buy side perspective. Here is why! You have an inventory retracement bar of the accumulation bar in the daily chart in the recent back drop. There was a lot of inventory there. We also see the exact same thing on the weekly basis.

You basically have multimonth accumulation between these two charts. That is a well defined reward to risk ratio area. What is a potential reward. I am not talking about where it goes all the way through the cahnnel and contiues on. I am talking about when it goes back to the channel.

Around the 5770 area it could be likely that it stalls out. This opened up around the 4680 area. That is around a $4 move to the upside of opportunity. If we buy the open on this, the stop loss goes right behind the key support area. If those institutions who bought it up above in January and February are still there, they would be gleefully buying at this area. That is what happened!

The risk on this was basically a little over 80 cents behind the $46 mark. Yet the reward was back up to here. That is well over a 3 to 1 reward to risk ratio. That is nearly even a 4 to 1. That is something that you can sink your teeth in, especially when you take a look at a situation like this. The weekly chart had a nice long term uptrend. Even the daily chart had long term indications on that. There is a higher probability that it is going to pull up. If you bought yesterday and managed your stops tightly, it went up around a $1.20. If you had a 50% trailing stop, you still walked away with a profit.

That is the kind of thing I am talking about. I want people to factor this all in. Are we gapping down into key support? You could have plenty of room to retrace back up because of that. Is this already a down trend in the market followed by room to grow to the downside.

A lot has to do with what was happening in the backdrop before this bad news came out. If the market is in a strong position people could find that this is a good opportunity to buy the dip.

That is something that I wanted to impress on a lot of people. I want you all to look at the key support and resistance levels for buy and sell or risk management opportunities.

There are a few minutes left on the clock. This has to be figured out by all of us heading into tomorrow. The RUSSELL did a great job of exploding up this morning with a parabolic move. The rest didn’t want to come along for the ride. Once the RUSSELL came off the highs, the rest followed with. The tech sector is still under pressure. We are still under the speed lines and under rising support holding on for dear life. We are under key supports on the NASDAQ, DOW, and S&P. The RUSSELL somehow magically had a very strong day. Which way will this settle out? Does the big 2000 say that it will follow the rest.

Yesterday was an inside bar on the day. Yesterday’s day was an inside bar on all four Stock Indices. Today for the first hour was an inside day on all four markets. That was until the RUSSELL started to break out of the range. That led to a really nice acceleration to the upside. The RUSSELL has been closing up real strong today. The NASDAQ has been closing very weak. We need that to get sorted out so that we can get directional. We will want to be there when the two of them start breaking together.

I hope you all have a great night and I look forward to seeing you all in tomorrow night’s videos.

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