Here today I'll like to show you a trade setup that I think will have problems to work, just to ilustrate the importance to watch all ways for a good risk reward.
The reason under this theory is that as we are looking for spots where the majority of the money at trade points to our direction, is vital to avoid any discrepancy that could erode that majority pointing in our favor.
When you peek a point to enter in the market with out a good risk reward ratio, one problem that you generate is the possible lack of traders wanting the same position because they think that the risk is too high in exchange for what they could get.
As you can see in this trade setup, all seems fine, its a potential sell in a down trend move, and eventually this could work but, the problem to enter now is that the risk reward ratio is bad, to the most secure resistance point are 655 ticks vs only 570 ticks of reward, so this make us to spect that the price first will need to take a upside pullback before see a good selling presure.
If the price retraces and hold the resistance intact, then the risk reward ratio improves and more people will feel more confident to trade the sell.
The reason under this theory is that as we are looking for spots where the majority of the money at trade points to our direction, is vital to avoid any discrepancy that could erode that majority pointing in our favor.
When you peek a point to enter in the market with out a good risk reward ratio, one problem that you generate is the possible lack of traders wanting the same position because they think that the risk is too high in exchange for what they could get.
As you can see in this trade setup, all seems fine, its a potential sell in a down trend move, and eventually this could work but, the problem to enter now is that the risk reward ratio is bad, to the most secure resistance point are 655 ticks vs only 570 ticks of reward, so this make us to spect that the price first will need to take a upside pullback before see a good selling presure.
If the price retraces and hold the resistance intact, then the risk reward ratio improves and more people will feel more confident to trade the sell.