As I figure, I probably have about a 60% chance that this trade isn’t going to work out. So why the heck would I even make this trade to begin with?

Because of the risk/reward that goes with making this trade.

You see, YELP has seen a surge of buying interest in recent days, going from the $17’s all the way into the $26’s. 

Today you have a huge market rally and YELP is down over 3% on the day. 

So my strategy is as follows: 

• Wait for an ideal risk scenario where either the stock has to bounce, or I get quickly stopped out. 
• Make the stop-loss where if the trade doesn’t work out, the minimum I lose is 4:1 to what I could’ve have made. 
• Because YELP is so volatile and a high-beta stock – this is very possible. 

Now let’s put it into practice.

• Bought YELP off of its 6-day upward trend-line (support)
• Bought near the previous lows of the day so that if it breaks those lows, I know immediately the stock is making a new leg down and that it is time to get out. 
• Entry therefore is at $24.68. 
• Stop-Loss is at $24.38 which gives me a maximum loss of 1.22%
• My Target is set at $25.91 (near break-even for the stock on the day), which gives me a target of 5% 
• Overall then my Reward to Risk is 4:1
• That means that this type of trade setup only  needs to work once out of four attempts for me to still make a profit off of it. That’s why with a likelihood of a 60% fail possibility, it is a risk i’m willing to take. 

And here’s the trade setup. Red = Stop, Blue = Entry and Green = Target as I described above.