Disliked'I still disagree because in my experience, you must take every signal' A: Must take? Please... such a common idea from trading books/sites, every trader who has some basic trading knowledge knows about the idea to trade every setup. The issue is: does it work for the typical trader who is using a defective trading system? Trading every setup would mean blowing up accounts faster. 'because you do not know which trade is profitable and which is not.' A: Wrong. I do know that the market tends to react differently with every consecutive setups, making...Ignored
The more losses a trader allows himself to take in his trading, be it by choice or forced, small or big, the higher the risk-reward ratio of the trading system needs to be in order to get net profit in the long run. If a trader takes a setup every time it appears without caring whether the market's deviant behaviours would mess up one's trades, getting a series of losses mixed with wins is almost guaranteed. Such a system will need at the very least 1:3 ratio in order to survive (barely) the market over time. The higher the R:R ratio, the more reliable a system will be in the long run in terms of profitability. Any scaling out of trade positions will greatly diminish the effectiveness of its R:R ratio. Such systems are very tough to use - one has to let a large part of one's trading positions run, and the system's success is highly dependent on getting very strong trend (which happens not that often) to push one's trades to huge profit targets. The trader has to trade more with a swing trading perspective (or with higher time frame charts as the main focus) rather than a day trading perspective, due to the need to get huge profit targets. Such systems can work, but are very stressful to use. The bigger the stop loss used, the bigger the profit targets need to be. The trader is likely going to get a lot of losses and sometimes losing streak, with such systems. If that big trade/win never come; he happens to miss that trade; or he mismanaged that trade, it will likely be a losing month/season/year for the trader.
'For the market to work, it needs people who think that they can beat it.'