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Hi there, I have been studying and trading the markets for about 1 year now. In this year I was able to study all the 3 Books (Trends, TR & Reversals), the course and still manage to be at least BE at the end of the year. I am writing this because although all the technical price action helped me a lot, I do think that there is an “Holy Grail” for trading which is adding to or winners and not to your losers. Tom Hougaard wrote “Best Loser Winns” where he talks about this concept which helped me tremendously.
For anyone wondering why it is so powerful, there was one week that blew me away. I trade the Mes, and I was risking about 150$ per entry and if the prices did what I was expecting I would enter more risking a maximum of 300$ per trade. As soon as could move my SL I would enter more and more only risking 300$ max every time. In this week, I ended up with a P&L in points of 0,25 pts positive which is very poor. However, because I added to my winners, I made 1000$ P&L. This means that if my P&L in pts were negative I would have still made money on the week.
This leads to my Stop Loss question. I think I heard Al and someone else confirming that when the market is in a MIC or a spike one could you a SL 5 pts below a bar (bull bar in bull trend and bear bar in bear trend), I know that having a SL based on dollars is not ideal because you are not making the best out of the probabilities because if you have a strong spike, normally, the market will go your way even after a PB. But I just want to confirm if it is ok to have a SL 5 pts below a strong bar or if I just imagine this 😅.
Example
In this case, moving the SL to below a strong bull bar, between bars 8 and 26 would allow you to enter at almost every bar keeping your risk very low.
Is that a profitable strategy?
Hope everyone as a good year!!!
cheers!!!
This is a great question and also one not so easy to answer. So the following are a few thoughts and please know that the full solution is much greater than what is here.
First, congratulations on making it through the 3 books and break even is a wonderful place to be, and in a not too lengthy period of time!!! AWESOME!
Adding to winners and not losers is a gap in logic because it predefines knowing winners and losers ahead of time. As trading is a probability space, one then needs to be able to decipher the context of a situation. A large bar could be a magnetic pull into resistance in a trading range, and this is different than an igniting break of resistance into a trend.
This leads to a few things, differentiating trend situations from trading situations well first. Next, this leads to risk management. A larger bar associates greater risk and therefore position sizing should accommodate to ensure all trades are similar. Therefore if one is not correct, all loses feel the same (and this is important). -200, -200, -175, -1k do not feel all the same. The stop loss position often is at the bottom of a pattern, however there are cases where this can be done at the bottom of a larger bar, if the assumption can be made that the bar actually began the beginning of a trend.
For cases where a bar becomes too large, it is often best to wait for a pattern which can be traded well in the beginning. However, recognizing a 60/40 imbalance (trend), the ability to enter with a OCO order should yield that probability potential if the market is read well.
Adding to a position brings greater risk/reward as it is 2 positions that need to be managed. It is an accelerant. Becoming profitable across a series of singular trades then provides the opportunity to explore additional ways to take advantage of trends. If you consider this last aspect, then becoming aware of trending situations vs trading range situations opens up a wide variety of potentials. The distinction between the two then becomes the underlying foundation, and this leads back to the reading of context on the chart - the singular most important skill.
As in all things, please test well.
Hopefully helpful and good trades to you!
The technique you are referencing is known as a price action stop, as opposed to a pattern based stop. Al covers these throughout his video course, which is excellent if you have an opportunity.
I believe Al said 5 ticks, not 5 points.
