Risk Vs Reward Signals Stock Market Short: Look At The Logic

[Jenny Rebekka]

Anytime you analyze any trade you must figure out how much reward there is versus how much risk you are taking. Reward has to be the obvious winner by a mile. When looking at the PowerShares QQQ Trust, Series 1 (ETF)(NASDAQ:QQQ) chart, and deciding whether or not to go buy or short, look for support and resistance lines.

 

On the QQQ chart, there is very limited upside until you fill the gap from the Brexit catastrophe. In reality, there is only about $0.50 of upside left until the major resistance is tagged known as gap fill. Gap fill is the closing price of the QQQ prior to the major gap down caused by the Brexit vote. However, if you look at the downside, there is a ton of reward. The QQQ has no major support on the way back down until double bottom which is below $102.00. This gives about $6.50 in downside reward. Ultimately, this assessment has a simple answer, short the NASDAQ 100 (QQQ).