We're Aiming for the Best Risk/Reward Setups By Larry Benedict, editor, The S&P Trader Last week was slower than normal with just three trades. I know that probably left some of you scratching your heads. After a rough patch, it can be tempting to jump right back in to try to recoup your losses. But I know from experience that this can be a mistake. Often sitting tight and reassessing the market is a far better move. Let your emotions calm, and see if anything has changed. Then you can move forward. The other reason behind the lower number of trades is something that I’ve discussed here before… We need to be satisfied that we’re receiving enough premium for the risk we’re taking on. This risk/reward ratio is key. If the risk/reward relationship isn’t stacked our way, we’re better off leaving a trade alone. Last week, we finished down $445 on a one-contract basis. Our rolling year-to-date profit is now tracking at $9,110 (on a one-contract basis). You can check those trades below… 
(Click here to expand image) As of Friday’s close, we’ve done 277 trades for the year. And 82% have been winners. We’re also averaging a 1.63% gain on capital committed per trade. That’s not 1.63% a year. Our average holding period is just one day. Now that small percentage might not sound like much. But small gains can add up quickly... If you made 1.63% a day and repeated that over the 252 trading days in the year, you’d be up 410.76%. How VWAP Works As I just mentioned, before we enter any trade, we need to make sure that we’re adequately compensated for the risk we’re taking on. That’s why I always quote a minimum amount you should receive for each trade. Usually, though, traders have a chance to enter trades at a much better price. To best match what most traders could have received, we use a 10-minute volume-weighted average price (VWAP) for our record keeping. The VWAP looks at the prices that traded for each minute within that 10-minute time frame. It then assigns more weight to those that traded with higher volume. So, for example, if 1,000 contracts traded at $2.50 during minute 2, then that pricing receives a higher weighting than the 500 contracts that traded at $3.00 in minute 5. In essence, the VWAP gives us the average price most traders would have received during that 10-minute window. Some folks might receive slightly less… and others might receive more. But overall, our track record should be close to what most subscribers are receiving. A Look Ahead Last week was a bit light on economic news. Retail sales data and building permits were the major releases for the week. Retail sales improved to 0.4% month-over-month from the previous 0.1% reading. They were 0.1% above forecasts. Building permits, though, came in weaker than expected. We saw 1.43 million versus the 1.46 million forecast. It was also notably weaker than last month’s 1.47 million reading. So we have a mixed result overall. This week, major economic releases remain thin on the ground. The main item is the durable goods orders data scheduled for Friday. That will all change next week when the next round of jobs and inflation data kicks off. In the meantime, the market will be keenly watching as Q3 earnings continue this week… High-profile Tesla (TSLA) is due to announce earnings on Wednesday. As always, we’ll remain vigilant and focus on trades that offer the best risk/reward setups in the week ahead. So stay tuned to your inbox. And don’t forget if you have any questions, comments, or suggestions, you can send them to feedback@opportunistictrader.com. Happy Trading, Larry Benedict
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