Quote:
Originally Posted by Black Knight
Rhody - point taken on assuming what is "obvious" and what is not. Though I don't recall saying stops & position sizing were independent - quite the opposite:
"if you need to use more lots, you can use a tighter stop. If your strategy or timeframe requires a wider stop, then you need to use less lots."
Though, agree, best to add the addendum "but do not make stops tighter than your system or time frame calls for".
|
It was your statement about money management being approachable from two different angles that suggest stops and position sizing being independent.
In terms of "...if you need to use more lots, you can use a tighter stop.", that's one I have a problem with. Needing to use more lots implies to me (and please some one tell me if they take it otherwise) that the trader is aiming for a profit target. In turn, that means they aren't properly concerning themselves with the risk first.
This is where traders get into trouble with tight stops. They want to make $1000 on a trade and can do so if it moves 100 pips in their direction using 10 mini lots (or a full lot). But they only want to risk $100, so they put the stop at 10 pips. They aren't thinking about where the stop should be put, just how many contracts they want to trade. It's all backwards.