i have a question for all the traders in this thread.
im curious how you manage your risk and maximize profit
do you go all in on an assumption, indicator read, chart pattern?
or do you have a way to, minimize risk by initial small position size and a way to use your capital to rescue the trade if it goes underwater?
as i said before i dont use stop losses, because they make you vulnerable, and thats the best way to blow an account on compounding losses
even if you say risk 5% or 1% stop loss or SAR, last days low, ATR, or whatever hocus...
SL and TP is how to best mangage risk.
they are very important because they control your risk/reward
the ratio of minimum 2:1 is a good rule
and it can be proven mathematically
this is not all about probability
but a big part of it is,
lets think about it this way.
the market can either go up or down or go sideways
we can say it can go in three ways,
so if you go long you have a 33,3% chance you made the right choise
because 100% divided into three is 33,3%
33,3% of the time you will win
33,3% of the time the market will go against you
33,3% of the time the market will go sideways and you will not either be making or loosing money.
it doesn't matter if we are talking about
100 trades or 1 million trades,
the grand total is allways 100%
what this tells us is that we will win money 33,3% of the time,
and we will loose money (or not make any money) 66,6%! of the time.
note that this is if we would enter the market at random without
any clue of which direction it might go
this is where it gets interesting.
if we have a stoploss at 10 pips we will be taken out
33,3% of the time when the market move against us,
33,3% we will not be taken out because we will be making some pips,
33,3% we will also not be taken out because the market doesnt go against us, it only moves sideways
obviously the market isn't dead still, it moves a little up or down
even in sideways direction, but it moves up 50% and down 50%
without executing our stoploss so this is not calculated,
because it's a brake even situation.
please note that this is under fair conditions,
if you have a bucketshop for a broker,
you will probably be taken out alot more than 33%
that puts you in a very poor situation
with allmost no chance to succeed
so choose your broker vicely,
that is also a part of money managment.
anyway, to continue, this means that in 100 trades we will loose 10 pips 33 times which equals to 333 pips. on our stoplosses only.
by knowing that we can now calculate how big our TP must be.
so if we take our pip loss and divide it into 33 we get 10 pip which roughly is brake even, we would like to win atleast the double of what we are risking, so we add the double amount of the sloploss and that will be our Take Profit, which is 2:1
obviously we don't allways use a 10 SL, it can be 14.6, then just doubble 14,6 and we get the TP
note that a 10SL and a 10TP would make it impossible to win in the long run
and a TP lower than the SL would be suicide
it also is not a good idea to overtrade your acount,
and not be risking more than 2-5% of your money at one time,
this is all a part of money managment that most sucsessful traders use.
Bulls are stupid Animals!especially when Im short!
