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Hi,
I have a question about what Al Brooks explain as a small risk but small probability and high risk with often high probability. As I am risking a fixed percentage for every trade I do, instead of a fixed lot size. I am a bit confused about this explaination because does this mean that I should use a fixed lot size and that means that my risk would variate for example between 0.5n to even 5 % per trade?
As example I use a 10 000 usd account and a fixed percentage of 1% per trade. If I go into a trade I risk 100 usd (1%) where ever I enter the trade or place my stop. so the lot size will be every time different. I have to calculate it every time I enter the trade, but I have an EA for that. So in this case the risk is the same on every trade but the probability changes.
So my question is, Do I read his words correctly or am I missing something? And does this also mean that I should be more focused on a fixed lot size instead of fixed percentage? So that I am risking more money with a high probability, in this for example 300 usd instead of 100 usd? As I scalp the market my stop is often below or above the previous candle, depending on what direction I am trading. this result if market starts to range that i am stop out very fast, even if i am trading in the right direction. But most of the time, if I read the market correctly it gives me a great risk reward.
Thanks for your help.
Olivier
Hi Olivier. You're getting a bit confused here. To my understanding, you're using different lot sizes for different trades. If you are, then you are on the right path.
You take your trades depending on the win probability you want, else you don't. So, if you want high win probability, you need to risk more ticks/pips per trade and you have to adjust your quantity in such a way that you never lose more than a fixed % of your capital. For that reason, you need to vary your lot size. So that, every trade potentially loses the same amount of money.
Your stop will rarely ever be the same amount of ticks/pips and to ensure that you don't lose more than desired, you need to vary your lot size. Your lot size does not determine your win probability, the price action setup does. You on the other hand, make the necessary calculations to ensure that if your stop gets triggered, you don't lose more than a certain % of your capital.
