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I have a suggestion for exiting.
enter with 2 units ( 1 unit could be 1 contract or 10 contracts or 100 contracts..thats up to your capital and risk i.e. max 1 to 2% of total capital)
exit unit 1 at 4x your initial risk whatever happens ( so even if wrong on second unit, the unit 1 will cover the loss on unit 2. example. risk 5pts initial risk. 5 pts x 2 units ( 1 cts per unit in this example) = 10 pt initial risk. If you exit unit 1 at 5 pts x 4 ( 4x initial risk) = + 20 pts profits. if you are wrong on second unit then + 20 pts - 5pts = + 15 profit. now if you are wrong on your entry you would get - 10 pts. but since you make a minimum of + 20 pts per entry you are still working at a 2 to 1 reward to risk which is not too bad ( i.e. you can be 2 times wrong and still be break even )
Exit unit 2. exit at minimum 8x your initial risk. that s a target but once it reached that level, you can do 2 things. exit right there or trail it since market is showing lots of strenght ( i.e. each new bar is big and full ...not much shadow on the candles ) . it's a judgement call.
Now if you exit unit 2 at minimum of 8x risk that would be 5 pts x 8 = + 40 on unit 2 and + 20 on unit 1 = +60 total profit for a risk of 10 origianaly . 60 / 10 risk = 6 reward to risk factor. so that means that for every trade you take, you can be 6 times wrong and still be at break even ( not lossing anymoney ) . This is a very favorable R/R factor.
You cannot control anything in the market but using this simple technique gives you confidence and a frame work to work with for you targets by putting the math in your favor. YOu can play areound with the Risk multiplier to... If for example your risk is +10 per contract and the the average swings are about 20 to 30 pts, you might lower your 1 st target to maybe a 3x risk or 2 x risk. and on the 2nd target a 5 or 6 x risk. that 's all up to you.
This idea is so simple that many people will overlook it but the simplicity of it makes it very stress free and builds your confidence over time since you know that you can be 6 times wrong and still not loss money for every trade that works out. |
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Thanks Kevin for the input, that would be truly a mathematical money management of the position, makes great sense from a RRR stand point of view...
I think it will work better on trending conditions, you need a trend to make this swings so you can get this x4 an x8 etc... so if momentum conditions are present I would suggest paying attention to this posible money management aproach...
If the market is in cycle mode, it will be dificult to have so hi 4x or even 8x RRR... so maybe you could lower it to a x1.5 and all in one 1 unit ( no runners ), because there is no running conditions to hold a runner...
thanks for inputs, please keep interacting, I will post soon some new technical exit techniques.... cheers Walter.