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22B I have some doubts about small risk
I have some doubts about "small risk". I think "risk" should contain two parts: one is the "distance" between the entry point and stop, just as al always says, and the other is "postion size".
risk = distance * position size（lots)
I think "risk" is money,not only distance.
As al said before, we should make sure that the expected loss of each transaction is the same amount of money, that is, if the distance is large, positoin size should be small... In other words, the "risk" of each trade is the same, but the success rate of profit is different. So there is no such thing as a "small risk".Is that right?
This is a problem that has been troubling me for a long time.
I believe you are overthinking this risk topic. It is all relative. If on an MTR I decide to set stop just above the high (or low), AND I only want to trade 1 contract, then I have set minimum risk - the smallest risk. But if I want to max out position size to say 2% of account, I might trade 5 contracts or more. The 5 contracts would then represent a "large risk" but it is 100% in my control. I decide what risk to take.
If I traded 2% of account on every trade, wherever the stop needed to be, yes, the $ risk should be the same. So no "small risk" in that sense other than distance to stop, and probability of success as you noted - eg 40% for an MTR, 60% or higher for a breakout.
So then depending on what setup we take, we could say "small risk" for a breakout, "large risk" for an MTR when taking account of probability, right?
As Al says often, do not just look at risk alone. You should not be seeing risk as a problem, just a math calculation under our control.
Trust the above is useful. I feel I have written too much and confused topic more! 😎