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Video: Evaluate Trades With Worst Case Scenarios

Video: Evaluate Trades With Worst Case Scenarios

2015-01-07 02:10:00
John Kicklighter, Chief Strategist
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Talking Points:

• Focusing on the best outcomes of a trade opportunities can set unrealistic expectations on probability

• The best trades are those whose worst case scenarios are still positive outcomes

• I focus on EURUSD's worst case scenario while also looking at EURCHF, AUDNZD and GBPJPY Want to develop a more in-depth knowledge on the market and strategies?

Check out the DailyFX Trading Guides we have produced on a range of topics.

When we execute a trade, we do it with the expectation of it being a profitable position. As such, it isn't surprising that most traders evaluate setups with a focus on how much return potential there is. Yet, imagining ideal outcomes does undermines a reasonable and well-thought-out strategy that is focused on probability rather than optimal scenarios. In contrast, when we evaluate potential setups for their worst case (but realistic) outcomes; the focus shifts to the general quality of the trade. If there are minor and/or only a few negative scenarios, the caliber of our trades will be better over time. We look at the market from a 'worst case scenario' perspective focusing on EURUSD - and a quick look at a few other pairs - in today's Strategy Video.

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