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The return to risk ratio shows the location
of a GorillaPick, between its stop-loss and first target
Return to Risk Ratio (RTR)
During a bull market, the GorillaTrades portfolio of
stock ideas has a tendency to grow quite large. As the Gorilla continues
to focus on growth for all of the new stock ideas, it is just as
important to focus on the growth and management of older GorillaPicks
in the current portfolio. While diversification is imperative, with
many positions outperforming the market and remaining technically
sound, which are the best positions to maintain when making room
for the newest stock ideas?
Introducing..... what might prove to be the most valuable feature
of the system...the Return vs. Risk Ratio!
After analyzing many different trading styles and approaches, the
Gorilla has chosen to concentrate on the ratio of "Return versus
Risk" (RTR). After all, why would one take on the risk of a
trade (or fight!) if there was no reward?
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The RTR tool enables subscribers to quickly sift through
the current portfolio to identify those GorillaPicks that are exhibiting
strength greater than the market itself, or to identify those GorillaPicks
which are experiencing a non-threatening pullback.
A larger RTR figure indicates that a GorillaPick
is closer to its stop-loss level than to its second target. It can
also detect GorillaPicks that are experiencing a mild pullback. The
higher the number, the greater the risk that a GorillaPick may stop
out, but the losses incurred will be small in relation to the potential
rewards.
A smaller RTR figure indicates that a GorillaPick
is closer to its second target than it is to its stop-loss level.
These GorillaPicks are exhibiting strength versus the overall market.
The smaller the number, the less risk there is that a GorillaPick
will stop out. The losses incurred may be larger in relation to the
potential rewards.
Example: A common approach to any trade consideration would be finding
those current, confirmed GorillaPicks that still have a high return
potential, balanced by-low stop out risk. To calculate the figure
in this new column, the figure in the column, "% from second
target" is simply divided by the column, "% from stop loss."
While a 2-to-1 ratio is ideal, a 3-to-1 one ratio, or more, is superb!
The Gorilla makes this potentially powerful ratio available at a quick
glance - just look for a larger RTR figure.
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High RTR (Return
to Risk)
Closer to stop loss level than second target
Greater stop out risk, but smaller potential loss
Large potential reward
Can detect GorillaPicks currently experiencing a mild pullback
Chart will generally show a downward sloping entry point, closer to
the recommended stop area.
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Low RTR (Return
to Risk)
Less stop out risk
Larger potential loss
Less potential reward
Detects GorillaPicks exhibiting strength vs. the overall market
Chart will generally show an upward sloping entry point, closer to
potential target.
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The Gorilla encourages
subscribers to be creative using this ratio, but at the same time,
to be careful of GorillaPicks that might have extremely attractive
RTR ratios, but are very close to their stop loss levels. This kind
of trade could easily result in a very small, but quick loss. Additionally,
shy away from GorillaPicks that have not "confirmed," and
are negative in the "unrealized gain/loss column." And,
as always, please view the Gorilla's figures as guidelines, and note
each GorillaPick's "Risk Rating."
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