Great post, SteveH! That's exactly how you decide what stop you need. By taking Excel (well, I use OpenOffice, but it doesn't matter much ) and working hard with spreadsheet and your trading setups. I would strongly recommend every newbie to pay attention to Steve's post, because it describes the tactics of optimal stop-loss placement.
Correct, but it is more than just the tight stop and the great RR; it is the emotional control factor. If you understand the trade set ups that allow for tight stops, an excellent RR and a high ratio of winners to losers then you never need to think about psychology. The more damage caused to any of these three components the more it plays on the emotions and the more psychological repair is needed. Getting down 6 pips was a jump but now 6 pips is a large stop and you can see why. You can hit the hourly/daily reversal and let it roll through the larger time frames and take over a 100 pips on a trade and it is no different from scalping 5 pips in noise except you recognize the different potential. A bigger return doesn't need a bigger stop is what I am trying to say. You will probably find that most of your biggest wins had the smallest MAE.
Yeah, definitely. The great power of context is exactly that: entering all trades as scalps, but seeing which have potential to turn into multi-hour one way trend (today is the great example of such an event, Euro squeeze, sort of shorts bailing panic).
Exactly. Today we scalped around the squeeze and then sat in the run up to the top. The big trade was the same risk as the scalps.
Yea. Actually, those big trades often have the smallest risk of all, because when you enter at the point of probable strong huge volume breakout, momentum very quickly takes away your trade in the money.
Hello NoD: Agree on what you say, and would say this is good honest advice to anyone starting in this game. Forget about handout, those are from guru who ain't getting enough kicks sitting in front of their screens, I would add Richard Wyckoff to the list, it's actually good supplement to Brook's idea.
yeah, but you need a good understanding of the big picture, anyone starting at this game, will just enter at breakout/down of any pattern, and wonder why they don't work consistantly
Ya, Will, as everything in our life, trading craft demands a lot of practice, before you start to "see proper things". The key is not run in circles by looking what else to add or replace in your trading tactics, but stick to simple and watch, watch, watch it. Until it starts to shine.