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Hi everyone,
I’ve been struggling with a concept regarding position sizing and risk that Al Brooks often mentions. In this video (at 1:41), Al points out a trade where you get stopped out and it results in a "small loss."
This boggles my mind a bit, and I’m hoping for some clarification:
The Dilemma: If my maximum risk per trade is $100, I always scale my position size so that the distance from my entry to my stop is $100. If my stop loss get hit, I lose $100.
The Question: Why does Al call this a "small loss"? Is it because we should be using a smaller position size than usual due to low probability?
In my head, a loss is always my maximum risk ($100), so I don't quite see how one loss can be "smaller" than another unless I’m trading a smaller size.
Thanks in advance for the help!
He's probably referring to folks who trade Futures and basing it on the average range at the time of production. Stock traders often have more flexibility to dial the size in, so I wouldn't get to wrapped up in it. Just take what's applicable to you from the course and don't worry about the rest. For example, scaling in is very dangerous for traders. For people who trade stocks, it can be a lot less risky for us because for many tickers, we can trade ultra small so we can use really wide stock vs. a Futures trader who can get clobbered using a wide stock trading just 1 Micro.
I think, in that situation Al might close the trade early because after the 2nd or 3rd bull bar in a row (after the 3 bear bars & 1 doji) is not what he is expecting. And if that's the case maybe he might be calling the trade 'stopped out' but really he just closed the trade before price hit the stop and call the trade overall a small loss.
