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On the daily setups, Al marks AIL stop entries with a green arrow and AIS stop entries with a red arrow. By definition, AIL means that there is a 60% chance that the market will move up X ticks before moving down X ticks and vice versa for AIS. If I was to take any AIL/AIS marked setup on the daily setups and use an appropriate stop, does this mean that it’s reasonable to use a profit target of a MM based on distance from the stop loss to my entry? My understanding is that this would result in a positive trader’s equation since Risk=Reward and probability is 60% or greater since the market is AIL/AIS. Note, I am referring to the trader’s equation at time of entry only since all three parameters of the trader’s equation change as every new bar is added to the chart.
Thank you for the explanation. I think I am understanding more now. I have one more question about this day’s setups/chart.
I recall a comment Al made in his second book where he said “holding your current swing trade is identical financially to initiating a new trade of the identical size at that price and with that stop.”
Swing bears who took the wedge bottom breakout trade around bar 15 would still be holding short in anticipation of their profit target at 6040 (MM down based on height of wedge bottom at bar 15) to be hit and now with a stop possibly tightened above the higher low just above bar 26. Therefore, if I was to sell below bar 33, use a stop above bar 26, and a profit target at the MM 6040, would this be a reasonable trade in the context of Al’s comment from the book? Plugging this into the trader’s equation tells me I would need a probability of 77% to make this worthwhile, and it doesn’t feel to me like the chance of the profit target at 6040 being filled before hitting the stop above bar 26 really is 77%. However, if that’s the case, wouldn’t the swing bears from bar 15 have already exited since their trade would be mathematically the same?
