Quote:
Originally Posted by Black Knight
You're misunderstanding what I said. Obviously you cannot just arbitrarily bring stops in tighter - the stop has to be proportionate to your time frame and to your particular trading system in order to be effective.
I'm simply saying money management can be approached from 2 different angles... position sizing and stop distance. Strategies relating to stop placement, and management of positions once you're in them, is an entirely different conversation.
Apologies for any confusion.
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It's the "obviously" that's a problem. New traders don't intuitively realize what you've just said. That's why whenever I hear/read someone say what you did the alarm bells go off in my head. I've seen way too many traders say things like, well if I put my stop 10 pips away I'm keeping my risk small. They don't realize that while it's true that they may be lowering the amount of loss they are taking, they are also increasing the odds of taking that loss, so really they are increasing their risk (lowering the trade expectancy).
This is also where a lot of the "my broker ran my stops" complaints come from too.
Like you say, stop placement should be based on the rules of the system being employed. Generally speaking, they shouldn't be hit if the market is going to do what the expectations of the trade call for.
As far as position sizing and stop distance being seperate independent variables (which is what it sounds like you're saying), I disagree. They are totally linked together. You cannot change one without changing the other if you're using some kind of specific risk (1%, 2%, etc.). Of course if your risk is variable, then both position size and stop placement can be independent variables.