Risk versus Reward

Risk versus reward is likely the most overlooked and misinterpreted part of trading.

The most common approach of R/R by technical analysts is to set an expectation prior to a trade entry. A relationship between entry, stop and target price.

It ultimately leaves out what actually happens in the market thereafter. No matter if you use advanced methods like chandelier and parabolic sar, or standard ones, like percentage trail or price increment trail stops, they all leave true probability equation of actual market behavior, for the most part, out.

As a result, stops are most often placed too tight, and exits are far from ideal.

One alternative to the common R/R approach is the quad exit strategy. This principle-based strategy is designed to maximize profits based on the actual behavior of the market, offering a more dynamic and potentially lucrative approach to trading.

It aims entirely at targets and does not tighten the runner's stop more than to break even.

Where pairing out targets and especially their final part becomes sophisticated when the equation:

"How much for how much"? comes into play.

You want to create a rule-based system that considers exit rules for this trend-catching element based on the following aspects:

Inter market relationships

total exposure within a sector

sum of runners both directional and in the opposite direction as a hedge

time of day

time of week

relationship towards preset market-moving news events

psychological balance in regards to the total sum of aligned runners

money management

higher time frame counter signals

time as exposure risk

portfolio balance

risk profile changes

 The true meaningfulness of a slightly more complex exit strategy versus a preset indicator is the psychological degree of freedom it creates for the market participant. It allows for ease of execution. With more choices created, there is an alignment along the markets. So, it truly allows for profit maximization without sleepless nights.