risk reward

inding a 2% reward trade on the same stock or index in 5min chart is hard.

I can only find 1% or 0.7% reward trade.

Maybe you could elaborate what you mean, I really don't get it. It would be good if you could post a chart and explain with an example...

sure 

I trade nifty futures.

the chart that I have shown is NIFTY 50 continuous futures.

I have attached today's day trade setup.

When you take a swing trade, you plan for at least twice your (actual) risk, or better for twice the initial risk, but you take whatever the MKT gives you. Sometimes it will be many times the initial risk and sometimes it barely reaches twice the actual risk. You don't know when you put the trade on but, anyway, once you are in you stay until you reach the target or the opposite side creates a setup. 

In your chart, any short (I highlighted with red/green squares some stop order entries) that you took before 29 Wedge second entry, you either exited at 2AR, 1IR or above 31H with whatever you had (depending on your entry).

Same thing with the swing up, if you took 20, 30 or 31 you got 2IR, other trades up in the trend gave only 2AR and, again, you have to exit at wedge 56L. 69H was a decent buy but this entry failed.

This was the day you had, other days the MKT will break out and get a bigger trend that will give you many times the initial risk, especially if you take reversal trades (29H, 56L, 69H), but not today and this is just part of the game!

29H looks so obvious after the end of the day. But during the session, I would be too scared shitless to take the long since I think the market will make another leg down after going side ways.

If you were to long at 29 will your stop be at the bottom of 29 or 23?

29H looks so obvious after the end of the day.

Yes, this happens all the time. Easier said than done.

But during the session, I would be too scared shitless to take the long since I think the market will make another leg down after going side ways.

You are right, it is a LP trade (swing) so it is Ok to not take 29 but 30 BO and 31 FT turned the probability in favor of bulls, so you can wait until then and buy if you want higher probability.

If you were to long at 29 will your stop be at the bottom of 29 or 23?

In this case both prices were almost the same so I would start with 23. If you want, after BO + FT the MKT shouldn't go below 29 if the swing has indeed started so you could move the stop below 29 but, as I said, in this case it is almost the same price so no big deal.

thanks @ludopuig

I can understand how it works thanks.

for example, if we are taking a trade with an initial risk of 20 pts but the actual risk is only 5 pts and in this trade, we make a 10 pts which is 2x of the actual risk.

but if we are wrong we could lose 20 pts if we consistently we might lose more than what we gain.

do we need to reduce the risk by exiting when wedges or Top formations?

As said by Al we don't need to wait till our wide stop loss to hit. 

for example, if we are taking a trade with an initial risk of 20 pts but the actual risk is only 5 pts and in this trade, we make a 10 pts which is 2x of the actual risk.

but if we are wrong we could lose 20 pts if we consistently we might lose more than what we gain.

Al says that 2AR does fullfill the requirements for having a positive trader's equation, although I can't give you the proof. What I do is initially going for 2IR but if the swing doesn't show strength (no censecutive trend bars, tails, bad FT after BOs, in short, it shows TR PA) I might switch to 2AR or a default target (4, 5 o 10 points in the EMINI). Yet, many times I do that and the MKT then reaches 2IR and some other times that the swing seems strong but it turns at 2AR, so there is no right or wrong. Study your instrument of choice, find the trades that Al would mark with a blue-rectangle, those are the candidates to reach 2IR, many times a lot more, and see what they give in your case.

do we need to reduce the risk by exiting when wedges or Top formations?

Yes, in swing trading you exit either at your target, when your stop-loss is hit or when the opposite side creates a setup so that is why I told you that no matter where bears entered before bar 23, they have to exit because this is a bull swing setup. And same thing for the bulls on the swing up, no matter if they entered 29H or 49H, they have to exit at 56 Wedge at top of developing TR.

Hi Ludopuig,

Just curious, why do we have to exit at 56? We know it is a TR after the fact. Isn't it still above the trend line and 56 low is still above high of prior pullbacks. My concern is if we exit at the sign of first bear bar after wedge, its difficult to reenter if the bull leg (could become trend) goes on. May be take partial profits at the resistance level (56L) and take a chance on the swing with the rest. Am I missing anything? 

Thanks!

@ludopuig

thanks for your reply I was confused with the target and profit-taking during swing trades now I got some clarity.

Just curious, why do we have to exit at 56? We know it is a TR after the fact.

Not really. When you see a move developing you have to ask yourself whether it is more likely a bull trend or a bull leg within a TR. If you decided the later, you think the bull leg will be followed by a bear leg, so you look for reasons to exit around former highs, 1H, and when you see Wedge 56 you exit. 

Isn't it still above the trend line and 56 low is still above high of prior pullbacks.

Yes, most wedges setups are above the trendline and prior PBs... Parabolic wedges are all of this type.

My concern is if we exit at the sign of first bear bar after wedge, its difficult to reenter if the bull leg (could become trend) goes on

This should be a concern if you decide that you are watching a trend, hence you think that resistances are going to be broken and holding for a swing is Ok. Here I would not bet that, actually I would bet on the short side because I think the move up from 29 was actually a bull leg in a developing TR. This is the key. Same thing on the down move, you can gain confidence to take 29H when you think that the move down is a bear leg in a developing TR, not a trend, so after a few bars down there will probably be a swing up. 

If I might add to what ludopuig said, if you check out the daily setups section you'll see there are several instances where Al explicitly says that once the market exhibits a strong trend in one direction, it becomes very unlikely that the market will move a lot against the prior exhibited trend.

For example, in the above case since the market went strongly down in the early phase, even though the market pulled back to almost the high of the day, a bull trend day was unlikely. So, if you actually get a setup like 56, chances of it working are actually a lot better than you think.

It might so happen that you get stopped out on your first entry but you can always take the next entry and chances of that working would be even higher.

Thanks ludopuig! I see your point, there are prominent tails on both bull and bear legs so possibly its a leg rather than a trend.

Thanks Abir!