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Hi
Al says that in every trade I should risk the same amounf of money, so my stop determines my position size.
But in some videos Al says if the I use a wide stop, I will loose less often but when I loose, i will loose more. This I dont understand. What I always do, is that I reduce my position size so that if my stop gets hit, I will loose the same amount of money than I a used a tight stop. I would loose the same amount of money in both cases.
Or does Al mean that in tight stops, I have to risk less money because it will be hit more often?
Thanks
I think he's just saying that if you lose, you lose more on the same position size. Therefore if the risk is too much when using your typical position size then you have to reduce size. So you're doing what he's recommending you do!
Also, it's "lose" not "loose" 🙂
Thanks Garrett! 🙂
If you're a Forex trader it might make more sense in that you can almost always trade a % of your account based on your stop because in Forex you can get down to micro lots and if you use a broker like Oanda you can get down to small units.
In futures it's different in that you are limited by your account size when compared to Forex. You pretty much can't trade a $500 account for example even in the MES. IOW, you can only reduce your trading size so much in futures. In forex you can get down to a penny a pip if you wanted.
Hi Javier,
Just to add regarding wide stops. One thing I noticed with good BPA traders is that even when they use wide stops they don't allow that stop to get hit - they usually will find a reason to exit early. This is a big philosophical debate whether to always hold for stoploss or exit early and there are pros/cons for each.
If you think about what a wide stop offers it seems like 2 things. 1) a protection against catastrophe like flash crash and 2) time to wait and see if an opposite signal develops
That #2 is very useful if a trader doesn't panic while trading but can objectively read bar-by-bar and expects pullbacks (but not too strong). So then they sit with small size and allow those weak pullbacks to finish.
But in general I agree about calculating size based on % of account instead of constant in terms of contracts or lots.
Hope that helps!
CH
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