The difference between a market opinion and trading

I think I can save a lot of time for a lot of readers who respond to me when they think I am wrong about their favorite market — be it Silver or Apple or whatever.

I am a trader. I could care less if I am wrong or right on any particular call. In fact, I expect to be wrong on either the timing or direction on more than 50% of the calls I make. Any trader who has a win/loss ratio below 50% should also expect to be wrong every time he or she steps to the betting window.

Let me focus on Apple Inc., or $AAPL. Yesterday I posted a chart showing an area (three day) island top pattern. This is a powerful pattern, often indicating an intermediate, if not major, top.

I am already hearing from the Apple heads — pointing out how wrong I am on their pet stock. My response — so what! In the first place, I do not have a position — I missed the island top because I was traveling last Wednesday. I will short Apple if it rallies to 399.94.  I will risk the trade to 420.11. Thus, I will carry a 20.17 risk. I will short 350 shares against a $1 million account. My total risk is 70 basis points (7/10th of 1% of trading capital).

My targets are 357 and then 316. If I get filled and if I am right on the trade I gain 290 basis points. The trade has a reward to risk ratio of 4.1 to 1 with the lower target. The weekly chart shows a dominant trendline from the 2009 low. This trendline has four major contact points. If this trendline is penetrated AAPL could trade down to 280. That would make the reward to risk ratio of my trade 6 to 1.

To me, a trade is nothing more than a reward to risk matrix. I could care less what Apple Computer’s stock does. It can go up or it can go down. If it goes up I lose less than 1% of my capital. If it goes down I could make 4% on my entire account from the trade.

This is all the trade is to me. I could care less about price to earnings multiples. I could care less about the outlook for Asia. I could care less about product development. The trade is a risk point and a profit possibility.

$AAPL

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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