Utilizing Decisionbar Trading Software to Pick Trades with Best Risk/Reward Ratios

By Les Schwartz

President - Decisionbar Trading Software

Some traders are winners, but most traders are losers.  One of the things that differentiate winning traders from losing traders is that winning traders ALWAYS evaluate the risk-reward scenarios before entering any trade.

Here is an example of a very simple risk-reward analysis.

Let's assume that the light blue arrow on this chart is a Buy signal given by whatever system or method you are using.  What does a risk-reward analysis tell you?

Now let's look at the same chart with my DecisionBar Trading Software applied.

Note that the Buy signal is in the same place and the risk-reward analysis becomes very intuitive.  The market will likely find resistance at broken support ("A"), and will likely find support at the new support level identified at "B."

Since you stand to lose more if the market drops to "B" than if the market rises to "A," this is a poor risk-reward scenario and you should pass this trade.

Here is what happened.  As we feared, the market stalled at the previous support level at "A" and dropped to the new support at "B."  Even if we had entered that trade, DecisionBar would warn us to get out when the market reversed.

DecisionBar adds clarity to your trading, but you still must make logical decisions as to which signals to take and which to avoid.

Now let's determine the risk-reward scenario for this Short signal.  Keep in mind that not every low is a support level, and not every high is a resistance level.  OK, got it?

Here is the same signal with my DecisionBar Trading Software applied.  Now the risk reward scenario is pretty simple.  The signal is given with the market just below resistance level "A."  If it moves back above it, we'll get out.  Our goal is support level "B." 

"B" is much further away than "A," so our probable reward is much greater than our probable loss.  Given the favorable risk-reward scenario, this looks like a good trade.

Here is what happened.

Are you trading like a Pro?

Stop wasting time and start making money by visiting our website at:

http://www.decisionbar.com/

and signing up for our 30-day risk-free trial.

Les Schwartz

Creator of DecisionBar trading software.

P.S.  Here is what one of our newer subscribers just had to say:

Your software is terrific!! I just need to trust it more. I have to set up a few more charts to monitor as there is not always a trade that makes sense.

I am going to stick with it.  I see the logic now of support and resistance as clarified by your software.

Thanks for returning my emails.  Your advice is very helpful.

G.M. North Palm Beach, FL