A 70k bet that I can't make a 50% gain in 2009
- Thread starter geez
- Start date
I think he's just following his rules and both basically hit good setups within close proximity to each other. I don't think he viewed it as a revenge trade.
The downside of a trade like this (not his trade but an overall strategy) is that a whipsaw can hurt you pretty good and mess up the risk:reward ratio.
Think of it this way: each winning trade will always trigger the stop loss on the opposite side (if you had a strategy of pair trading these). So, you're maximum win rate on winning trades is 1:1. That is, if you risk $200 on each trade with a target of $400. To get to the $400 target you will hit a stop loss on the other side of the trade for a $200 loss. So, the pair will win $200 net if it works.
However, you could have a situation where both stops get hit in a whipsaw and you lose $200 twice for a loss of $400 on the pair trade. So you're "real" risk:reward is 2:1 with maximum risk of $400 and maximum reward is $200.
The downside of a trade like this (not his trade but an overall strategy) is that a whipsaw can hurt you pretty good and mess up the risk:reward ratio.
Think of it this way: each winning trade will always trigger the stop loss on the opposite side (if you had a strategy of pair trading these). So, you're maximum win rate on winning trades is 1:1. That is, if you risk $200 on each trade with a target of $400. To get to the $400 target you will hit a stop loss on the other side of the trade for a $200 loss. So, the pair will win $200 net if it works.
However, you could have a situation where both stops get hit in a whipsaw and you lose $200 twice for a loss of $400 on the pair trade. So you're "real" risk:reward is 2:1 with maximum risk of $400 and maximum reward is $200.