Do you know that you are ready to make profit in the stock market by being wrong. Yes, this is possible. The secret lies on the profit loss ratio that your trades have. The higher your ratio is, the more you will be able to be wrong and still come out with a net profit.
Profit to loss ratio.
This ratio suggests how much you expect to succeed if everything goes according to plan divided by how much you expect to lose in the event that things start to look ugly. Always make an attempt to have at least a 3 : 1 profit loss ratio. Even more if you can. For example, a 5 : 1 ratio will enable you to be wrong 5 times out of 6 and still breakeven. That means that if you are right only 20 % of the time, you might still be able to profit.
Keep in mind that although this ratio is highly useful and will enable you to enhance your performance in the stock market, it is not as easy as that to follow that ratio. For example, at one particular trade you might decide to end things earlier since you want to lock in the profit that you have already made and the stock has just begun to move to move In this trade you might have only won 2 times your initial loss thus making a different ratio. But do not worry, the thing matters at the end is the average.
Better evaluation of your trades.
This ratio will start you with a firm foundation on to choose which trades you want to take. You will be able to better evaluate a trade and see if its profit loss ratio still makes a valid and respectable trade or if it should be left alone and move to the next one. Other trade might seem like a good one but it has a resistance nearby that you believe the stock will not break thus reducing your ratio and making you let it go.
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