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Just finished series on stops and scaling. This question needs an intro. Sorry:
Al frequently says where the correct stop is, and if it's too far, "don't take it."
Let's say your risk is in dollars instead of points though, and I risk $100 dollars maximum a trade.
The stop happens to be 10 points away on /ES, or $50 per micro contract.
If I buy correctly with trend using the correct stop, I have a 60% chance of making profit, but my reweard is lower.
Al frequently says, "low probability high reward" or vice versa.
However, if I use the small high1 or high2 signal bar stop, I probabbly have a 50% chance of a profit. Let's say that stop is 2 points away instead of 5 points, or $10 risk per micro.
Suppose I buy 5 micros with the the 2 point stop instaed of 1 micro with a 10 point stop -
Wouldsnt I be risking "the same amount", ie
The probablity of being stopped out increases, but total points, or dollars risked, is $50 (the same). My probability drops by 10-20%, but my, my risk stays equal in dollar amount, but my dollar multiple could increase by 5 fold for the same move.
Is there a clear answer on which is "better," or is it just style and tolerance?
-Mo
Thank you. But a still confused about a couple things.
Let's say you take a H2 setup, but the Major Low (correct stop) is 10 points a away. Signal bar below H2 is 2 points away. Does al have any percentages or expectancy based on the stop?
If you use the "correct stop", it appears if you read the market correctly, you have a 60%ish probability for a measured move.
Buf if you put the stop below the H2, I can't imagine that if you're correct on direction, you're much less than 40% (because if you went down to a 1 minute chart, you'd likely see a breakout big enough with a low below the H2)
That makes sense. Thank you! Will continue to learn.
