What is the planned target/risk ratio?
Reveal the worked answer
About 0.43.
1.20/2.80 is geometry, not expected return.
Technical Analysis · TA-07 · Core
Chop and balance
When does movement fail to create direction?
What you will learn and prerequisites
- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.
Read first: Market structure comes first
Chop is repeated overlap and failed progress, not necessarily low volatility. A violent range can be choppy while a slow drift trends. Recognizing the distinction can prevent forcing a trend strategy into a two-sided auction.
Understand the mechanism
A range fade expects rejection at an edge; a breakout expects acceptance outside. Those premises cannot both remain true after contradictory evidence. The center often has poor distance to the next obstacle relative to invalidation.
Walk through the process
Fix the range window, mark center and edges, and compare target distance with planned risk and execution costs. Watch whether activity migrates outside. A single touch is not acceptance, but persistent new trade should not be ignored because an old range existed.
Pause before deciding
Describe what the example actually establishes and what remains unknown. A technical observation supplies context, not an automatic options entry. Contract cost, horizon, liquidity and the consequence of failure still need to match the thesis. Record the contrary branch so a named pattern cannot become an excuse to ignore new evidence.
A worked example
Price rotates 98–102. An entry at 100.80 aiming at 102 with invalidation 98 has 1.20 reward versus 2.80 planned risk, a ratio near 0.43 before costs. A bullish candle does not change that location arithmetic. A new accepted range above 102 needs a fresh assessment.
Chop and balance—worked comparison
Vertical: Spot (USD)
Horizontal: Illustrative observation
1. Fictional example
Read the graph as a data table
| Illustrative observation | Fictional example |
|---|---|
| 1 | 100 |
| 2 | 102 |
| 3 | 99 |
| 4 | 101.5 |
| 5 | 98 |
| 6 | 100.5 |
| 7 | 102 |
| 8 | 100 |
What would invalidate the reading?
Continuing to fade after genuine repricing can turn a mean-reversion thesis into stubborn opposition. Stops remain subject to gaps and bad fills.
Check your understanding
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
What is the critical failure to avoid?
Reveal the worked answer
Continuing to fade after genuine repricing can turn a mean-reversion thesis into stubborn opposition. Stops remain subject to gaps and bad fills.
Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome.
Return to the question: When does movement fail to create direction? State the observed facts, the assumptions and the failure condition separately.
Sources, assumptions and downloadable script
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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