I've been using a similar strategy ie scaling in to a position. I close out if i gets to my maximum acceptable risk level ie loss level. I have struck 3 problems: 1. If the trade goes against me and gets to my maximum loss position I am guaranteed to make the maximum loss ie a 2.5% loss. 2. If the trade goes directly in my favour and gets to my target I get the win but much smaller stake than for the loss, the best payoff is when the price moves against me but doesn't hit the max loss and then returns. 3. The amounts of the initial stake are quite small to enable me to have the flexibility to chase a losing position and stay within my max loss %. Any suggestions...
Then why not set a hard stop at that level? Otherwise, you will be deciding your stop on the fly. Much harder to do in the heat of battle. You are correct in that I do not understand a stop that big. Would never work for me since I change my mind about ten times per day. I am a true day trader. I take tiny risk, with a series of small gains in mind.
Best way to improve stop placement is to make the issue moot -- that is, buy the low and sell the high every single time. Barring that level of precision, there is only one alternative: keep trying until you get as close as possible. Everything else is a waste of breath.
Another concept that is often missed in trading, that is somewhat related to money management and stops, is the true support and resistance levels of the market are diagonal, not horizontal. A stop should <b>never</b> be placed below a horizontal level of support but that's exactly where they are. Buy on a diagonal level of support when these horizontal levels are breached and after the market stops falling. Buying a lower low has a MUCH higher probability than a higher low but that view is based on my experience and I can't offer any evidence to support that so easy on the anger fellas