Dissecting posting number 41.
EU H1 TF
Gave us two opportunities to TP in a range of 30 to 70 pips.
Notice our SL at the Yellow line.
The SL has been a strong and valid a one. Please note how the final spike 3 hours before this screen shot was done, came so close to the SL area but did not cross or hit that line?
In this case, the HH wave worked as a charm. We say the SL was a valid one.
Please take note on how SL is put on the peak of a wave ( either previous LL or HH ) and not set as arbitrary values. Pay attention to the statement above.
When traders say that " my trading system has a SL of 30 or 50 or even a 100 pips", then what they mean is that is the range of their SL. That is the maximum loss that they are prepared to accept.
We have to see if the trade setup that is unfolding infront of us has valid areas of LL or HH that can be used as a SL and the pip count from the entry should be inside our SL range.
The lower the better. If its higher then we dont take the trade.
The SL has to be valid. It depends on the wave patterns. But which ever it is, the SL that is on the screen should be inside the range of our acceptable loss. Part of how much we are prepared to risk as per our money management.
This is where our system comes into play. If our system is one that gives us a profit of a minimum of a 100 to 150 pips, then I guess its fair to say a SL of 50 pips max is acceptable.
If the system that we are using gives a max of 20 pips per entry and its not wise to hold for more, then what is the point of taking a trade that has a SL of 50 pips as per current wave??
“As per my system, the SL is 40 pips and its rarely hit/very safe” does not mean that the System will ensure that it will give you an entry that rarely goes above 40 pips as Draw Downs. ( DD ). It just means thats the maximum I can risk as per my money management and the risk to reward ratio my system is capable. It does not mean that the damn thing is safe and it wont be hit!
You decide to pull the trigger as per your system after considering a range of things. One of it is the value of a valid SL in the current set up. Just smacking a cut off order 40 pips from your entry point just because your system says that the SL is 40 pips is going to make it much more difficult for you to be a profitable trader.
Remember, this is a numbers game. And in any game that is based on numbers, any small itsy bitsy tiny little thing that you do to improve your chances of not being eaten by beings that are much much much much more bigger than you in this pond will go a long way to ensure your survival and growth.
I hope that explains SL.
Its not about the value. Its about the waves.
The same goes to TP. Statements such as a trade has to be 1:4 ratio is a guide. It does not mean that for a 25 pip SL, you must have a TP of 100 pips. You are in a profit of 70 pips and it sort of stalls, or has hit the previous LL area, or its hit a resistance area, or its going to go out of the market times you normally trade and you dont TP?. You going to say look my Risk to Reward ration is 1:4 so unless it crosses a 100 im not cutting and banking??
Dont take it literally.
Trade entries as per our system become much more valid and ensures us a much higher rate of success in this business when we start paying attention to such details. These are the sort of small details that maximizes our chances of growth.
Remember,systems or a set of indicators are not the same as a crystal ball that foresees the future. ( and if you are having any bright ideas, there are no crystal balls that can see the future either.)
It cannot tell you where the prices are going to go more accurately then your cat can. ( If your system can do that, then your cat can too. It licks its paws then buy, it licks its underbelly then you sell, it licks its ballz, you stay the hell away from the market. That is a valid system also. I call it the CAT System, USD 3999.99 retail, now for USD 599.99. Hurry limited time only. For the first 500 suckers).
A system is just a reason for us to take a trade at a particular price level. Its just a guide on where we can TP and where we can put in a SL. You need to work out the details of the system to maximize your chances of profiting,
Dont be blind in looking at the blinking indicators and keep pulling the trigger because your system just showed an entry. No amount of maths is going to save your money if your trading is mechanical in nature and you work your chosen system that way.
If you have a system that is very profitable for a given time period and then falls flat on another stretch of time, then you are being mechanical in some aspect. You need a diagnostic exercise and a system tune.