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Figure 18-2
Risk and Time |
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A trader's goal is to be in a trade for the least amount of time, thereby reducing risk, and for long as possible to increase the possible profit. It is critical to understand that risk always increases over time; however, profit potential does not. A profitable trade in a nontrending market is dependent on the timing of the entry and the exit. In a trending market the timing of the entry and exit is of less importance. As a position is held over time the risk is constantly increasing, albeit at an ever-decreasing rate. However, the profit potential is not. Consequently holding a slightly profitable position too long will increase the risk enough to negate any profit potential. Since the market is unpredictable, the longer a trade is held, the higher the probability that there could be an unexpected adverse price movement. |
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Volatility measures how price changes over a certain period of time. The most effective measure of volatility is as a percentage of change. For |
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