Risk of Ruin- Chart

Found this chart earlier. It show's the probability of Risk of Ruin. Which is a concept that every trader should know and follow. It's a fairly straight forward chart, however, you won't know your Risk of Ruin unless you keep a detailed log of all your trading data. Without that, you're blind and keeping a log of your data in itself, is the best book you can read on trading, your own.

 

The left hand side shows the ratio between your average win and your average loss and the top row shows your Win Percentage. Right now I'm about 1.5 and I'm hitting 50%. So my risk of ruin is about 4%. My odds of me blowing out my account by 50% net capital loss is 4%

 

At the moment based on my current data, those are good numbers to have. Plus, the fact I have a positive expectancy should tell me that over the long run I'll be profitable while keeping the odds of a Risk of Ruin to a low odd.

 

A side not: This is based on if you do 100 trades (strong statistical data to represent the long run) and Risk of Ruin is 50%

 

Bear Market Ahead?

Looking at the SPY 15 year chart you can see that we're basically at the top. The highs we are at right now are back from the .com bubble back in 00/01. If you look closely you can see that we had a false breakout above those levels (red line) and pulled back immediately. It's ironic how we have a credit crisis right at the time of this top. Maybe this is what we'll be blaming the bear market on when we're actually in the middle of it. Leads me to believe that we might not have enough strength at the moment to really blast through these highs.

 

We have a lot of uncertainty and mild fear at the moment about the market. I think this will eventually turn into bigger fear and eventually full blown panic as we're watching the market decline more and more. I mean come on, this market seems to be held up buy 3 stocks, RIMM, GOOG, and AAPL. The market's been stuck at or around the same levels for about 2 weeks.

 

I think waiting for more fundamentals to come out is crap. We're putting up false hopes that the market will get better if we just wait one more day to see what it does. Well, I'm gonna be bold and come out and say I think we're in the early stages of a possible bear market.

 

S&P 500 Seasonal Chart

Found this a while back and thought it might be useful for you.

 

Gold vs Bonds vs SP500

Noticed something interesting between these 3. They're creating something that I've heard been called, the jaws of death. Which something I've kind of noticed before but didn't know how it would play out but now it's still going on about 3-4 weeks later.

 

If you notice in the black box, the red line (bonds) are heading down which creates the bottom part of the jaw. The blue line (sp500) creates the upper line of the jaw and creates a mouth looking thing. It represents recession. Gold is still up, sp500 up yet bonds are going down, dollar is going down. Bad situation in my opinion, for what it's worth.

 

Look at this volume

Interesting. Whoever is buying so many shares must know something about this. Especially now that it looks to be making a bottom.

 

Trades Setups

 

Both of these charts are 6 month charts. I really wanted to emphasize how strong these support and resistance levels were so I panned it out to 6 months.

 

ZHNE: Below is a beautiful setup. My jaw actually dropped when I saw this. There is so much support at 1.22 it's unbelievable. I can put a stop at 1.18 which is way below normal here on the chart and still be in my risk guidelines. Heck, I can probably even drop it to 1.17. The upside potential for this is solid. There looks like a bit of short term resistance at the 1.25 level but the highs today pierced it and got to 1.27. Once we get passed 1.25 it could be all uphill from here until 1.38-1.40 area.

Entry: 1.22

Stop: 1.17

Exit: 1.40

Risk: 3%

Potential Gain: 13%

Shares: 400

Risk/Reward Ratio: 4.0

Potential Holding Time: 2-4 weeks

 

Only downside I see to this is the amount of volume. It's barely trading around 120,000 shares. I don't like to trade stocks unless it's at least 250,000. We'll see what happens.

 

COSI: This is one is looking good. However, I need to see it test the support levels at 3.60 which are pretty strong but I don't like the look of that candle for today. The current entry target could be a little too low but I think it's a good spot considering the bearish candlestick that's represented for today and the strong support level which the candle closed at. It's kind of stuck in between.

 

Entry: 3.50

Stop: 3.36

Target: 4.00

Risk: 4%

Potential Gain: 16%

Shares: 140

Risk/Reward Ratio: 4.0

Potential Holding Time: 1-2 weeks