[Black Knight]

Originally Posted by rhodytrader

It was your statement about money management being approachable from two different angles that suggest stops and position sizing being independent.

Well, here you made the assumption, I'm afraid. I said it can be approached from two different angles, which is what people often forget. I never claimed them to be independent of one another. Quite the opposite in fact - I was attempting to clarify the relationship between them, as evidenced by my prior quote:

Originally Posted by Black Knight

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.

---

Originally Posted by rhodytrader

This is where traders get into trouble with tight stops.

The stop (and target) should be proportionate to the strategy and the time frame, I was under the impression we've both already agreed upon that. Though I need to correct you on "tight" (by itself) being the cause of trouble... "too tight" a stop, yes. There are also (legitimate) strategies which can tell you pretty quick whether the trade you envisioned is actually there or not (such as a key support or resistance level failing). So why stay in longer when you already know you're wrong? Also, I know many (successful) traders who will "chip away" and take several entries to "get it right", and they don't mind the ones where they were "wrong" precisely because they used tight stops and their target more than makes up for it.

Obviously risk/reward is a factor here. I advise people to pass on the 1:1 trades. Then you're just trading to be trading, which is called gambling.

Where most beginners fail is, you're right, unrealistic expectations. They use too many lots and get into positions they cannot afford to tolerate through the noise (my initial post was an attempt to help with precisely this problem). And, you're right, they use stops which are too tight for the strategy they are attempting to employ. But, provided the strategy calls for it, tight stops can also be used effectively. I have trades currently open with a stop of 20, and some with a stop 150 pips away. It all depends on what you're doing.

---

Originally Posted by rhodytrader

They aren't thinking about where the stop should be put, just how many contracts they want to trade. It's all backwards.

Great point here. People are reading this without the benefit of years of trading, or having had read your book (or mine). I'm assuming if they're talking money management then they already know how to pull the trigger (which is only once you already have your stop and your target and therefore a clear idea of risk/reward). I also assumed this was a single thread in a larger forum, and not a book to be read start-to-finish or to be all-inclusive.

The truth is actually the reverse. You should know your target & stop going in, and the stop (along with your equity) determines how many lots you get to use.

My point simply was that, if you find yourself using less lots than you like (not for profit motive, by the way, but for the ability to perform proper trade management and the ability to scale out of positions with multiple targets if required), then you can also perhaps look into strategies which have tighter stops and closer targets as an alternative (not merely tighten your stops on your existing strategy - please!).

Another great idea would be to start using micro lots - again the goal is not immediate profits, it is learning how to trade, and how to properly manage positions once you're in them (sorry folks, entry is 5% of a good system - at best).

Thanks for the great discussion, Rhody - good stuff here.