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Hello,
I am having difficulty wrapping my head around the concept of changing my profit target to 1:1 or 2:1 with my actual risk instead of basing it off of initial risk.
I fully understand why I would trade either 1:1 or 2:1 based on my initial risk, this makes full mathematical sense. I just don't get how it still makes mathematical sense to base my profit target off of actual risk when I was risking more initially and I could have gotten stopped out at that amount.
Anyone care to elaborate or help me wrap my head around this concept?
Thanks
I can't help, I don't know and, even though this question comes from time to time, I don't have a theoretical answer mainly because in my swing trading I really don't need it, so I am confident and didn't argue with Al and believed, and still do, that it is mathematically correct (and if it is ultimately wrong, it does not affect my trading).
From my experience, going just for twice actual risk, or even twice initial risk, if you add mistakes and commissions, it is very difficult to break even. Al repeats that many times: the minimum is rarely the ideal so we should swing for more. Yet, if you use instead PA stops and profit targets in some of your winners you will get many more times than twice initial risk, and those trades are the ones that push your P&L clearly in the green, otherwise mistakes and full-blown stop-loss hits will kill you...
I am not answering your theoretical question, sorry, but at least I am pointing you out how to manage that in practice!
Hello,
I am having difficulty wrapping my head around the concept of changing my profit target to 1:1 or 2:1 with my actual risk instead of basing it off of initial risk.
I fully understand why I would trade either 1:1 or 2:1 based on my initial risk, this makes full mathematical sense. I just don't get how it still makes mathematical sense to base my profit target off of actual risk when I was risking more initially and I could have gotten stopped out at that amount.
Anyone care to elaborate or help me wrap my head around this concept?
Thanks
Dear Colton,
Please consider my opinion on this: if actual risk level is reached there might be some PB there. If two times actual risk is reached chance for PB is slightly higher. If that level is less than minimum scalp I don't take profit there, but I'm conscious of it. If it is at the level on minimum scalp I watch closely what is going to happen next... So it might be potential early exit.
In regard to SL, I understood that traders hardly allow it to be hit. So risk is not really initial SL.
With kind regards.
IN
