Coca-Cola (NYSE:KO) continues to frustrate as it hovers and refuses to either break up above the high of the red zone, thus triggering stop losses, or finally turn lower and begin producing profits.
The odds for this trade’s success have plummeted this week, and this puts me into an interesting strategic position.
I always think about the math of trading in terms of $1,000 risk “units”. If I scratch the trade for nonperformance, it would book a loss of about $800 for every $1,000 of risk put into this position.
That’s not saving much, and while the odds for a profitable outcome are diminishing…KO is still bearishly biased and could pull it out.
So the math is this: Do I save a little money and book the loss, or do I let it work itself out?
In other words, am I more advantaged taking a certain $800 loss or do I leave it be and essentially risk an additional $200 for a small probability of making $1,000-$1,500?
The breakeven odds is for this question is about 17%...
Here is how that works out: If I risk $200 to make $1,000 and I make $1,000 17 times for a gross profit of $17,000 then lose $200 83 times for a gross loss of $16,600 I would produce a theoretical gain of $400.
So therefore, as long as I have confidence that the odds for success of this trade are better than 17% I should stay in! (This is a lot like calculating “pot odds” in a poker game to determine whether the advantaged play is to bet or fold..)