3-1 Reward-Risk Trading Emerson Electric Company (EMR)

I completed my trade on EMR stock with 3-1 reward-risk ratio yesterday winning $1.3K. I bought 300 shares of Emerson Electric Company on 7th of June at $51.60 and was delighted to see the stock price climb to $56 in 3 weeks’ time. I sold the shares at $56.13 based on the 5-min chart as I’m not expecting a price advance above the resistance level at $56. EMR stock has been trending upwards favoring long positions over the last 2.5 years but the Double Top in the weekly chart doesn’t allow me to hold my position longer. Besides my goal was to profit from swing trading and not position trading, so the result was quite satisfactory.



Screenshot of trade confirmations' screen - EMR stock

Applying technical analysis on the daily stock chart of EMR stock, it was easy to spot a MACD divergence and a well defined support level at $51. That support level had previously been a resistance level if you look at the weekly chart of Emerson Electric Company stock, adding to the credibility of that price level. The EMR stock is trading above the moving average in the monthly chart, so I was looking for a long entry point and RSI indicator being close to 30 had been another fine signal to trade long. Setting the necessary stop loss ($50.30) right below the support level ($50.80) and buying stock at $51.60 led me to trade 300 shares of EMR stock, calculating my risk at $400. I could have set a tighter stop loss and trade 400 or more shares, but I prefer to let the market breathe before proving my decision was right. In this instance my decision to enter long EMR was proven wise and the 3-1 reward-risk ratio was a little overcome. Finding that kind of trades and winning more than 25% of the time, the stock trading system will be surely profitable in the long run.

EMR-daily-stock-chartAlthough I traded out EMR stock on a day that a full green candlestick was formed – a sign of great buying power – I consider the resistance level much more significant. Many stock traders keep an eye on their closed trades to see whether they exited correctly or they could have made more profits. I advise against that method as watching a chart of a stock you no longer hold will be time consuming and will harm the trader’s psychology. When you enter a trade you should have already planned where you exit and take profits, so when that time fortunately comes, stick to your decision and never question yourself.