DislikedThanks a lot Mike for your reply re: the stop loss. I absolutely AGREE you need to ALWAYS have a stop loss. There was NO question about this. Only thing I am still "debating" is whether to do example A or B. A. hard stop loss 1 pip below the pinbar low, 50 pips away from entry, and position size so that 50 pips = 1% loss, take profit 100 pips (bare with me, please assume 100 pips is a logical target, not just pre-defined R ratio). Our losses distribution will be, if trades executed OK, each loss equals 1% capital. B. hard stop loss 4 times wider,...Ignored
It's not that option B is wrong. There is no flat our right or wrong in many ways in trading. It's about having an edge with your method or not. So if you test out and find that by doing option B you are profitable, then great. I never knock other methods and ways people put the pieces together. But be careful on what is profitable and based on both hard data but also logic behind it(ie not curve fitting your results).
So is it ok to both put a stop loss X amount of pips as a "mental" stop loss and close out when you get a close below/above the bar. Sure. In fact it's more than valid, it's just another way. BUT be careful when we talk about "pip" numbers, the basis for this(logic), and also consider the MM side of things.
My bigger fear is what is the reason to do option B? For me it sounds more out of fear of taking losses or leaning on "hope" to turn price around. The market doesn't care about "pips" So having your stop loss 50 pips, 100 pips etc doesn't have a meaning to the market. So for me sticking a stop loss 200 pips above the high of a beob or what not negates the reason for taking the beob. After all if my analysis is correct that beob should do what I expect and if price comes above the beob(all things considered) wouldn't I no longer have a reason to be in the market. If at that point I am just hoping over the next 200 pips for price to reverse, that's just hope an no longer an edge for me. As well as how can i properly manage such a trade that has now negated my reasons for getting in. Every move I make from the entry of my trade to the exit is all calculated based off that initial story/entry as well as new price that comes in. When things no longer act the way that are conducive to my entry I jump ship or get stopped out(via a trailing stop that I manually move or where my inital stop was etc). This is how I know when to get out because my story no longer exists. Or in other words the market is now behaving in a way that is not part of my method in the long run. Of course this is based on something I created as well as based on specific types of entries I take, specific ways I manage such entries. We can't say that this is the proper way for ALL methods, or ALL entries. Hence why your hypothetical example isn't right or wrong.
Another factor is, if it's the case that you are spreading your risk over 200 pips AFTER you PA bar you are jeopardizing when price goes in your favor. So your returns are diminished. If I risk 2% on a Beob that's say 200 pips, and you are risking 400 pips on that same bar(200+ 200) at 2% now think about your upside as well. How does that fit in? So when I see people do what you say eventually i see them do the following. Most likely they greatly increase their risk to compensate for this loss in position size. So they now say risk 5%+ on a trade. Then price does reverse and their stop that they think is large(which 200 pips is nothing) is about to get hit and they start to drag it back going "oh just a little more room it has to reverse". All of a sudden they are in major drawdown.
So again I am not knocking other methods that are tested and proved. In fact I applaud those of you that do. That's what a trader is. Someone who creates something that is proven and they stick to it. But always question all pieces of your method or ideas and it will teach you a lot. The above is of course an opinion(as is anything in trading). If your testing shows you one thing and to you it is logical nothing wrong with that. Continue to test and dig into everything you do. That's all any of us can do. We trade our beliefs in the market at the end of the day.
Hope that helps