Too tight a SL and a trader WILL lose. If price action trading is a traders <<modus operandi>> then an initial PA stop loss should be used, not a monetary SL , IMO. If price action is going to determine your entry then it should also determine your exit in terms of a max SL. That max SL I consider to be the point at which my premise for taking the trade in the first place is wrong. For a scalper this requires a high win rate because even on high probability trades the rewards are often going to be relatively small when compared to the losses when a losses do occur.
Apart from maintaining a high win rate to offset larger PA SL’s, a strategy that I use when I do suffer a bigger loss than my average reward, is to double up or sometimes triple up, in the correct direction to get my larger loss back on less movement in points than that movement that caused the loss in the first place. And if price, on the doubled up position goes in my favor after entry, the same or more distance in points that the previous loss did then in short order I not only have my loss back but a profit. But this does require practice to train oneself to work the process and not get carried away with the emotion of the moment. He just suffered a loss and now doubles up in the opposite direction. Not emotionally easy to do. It takes training an practice to execute it properly.
Remember, a high probability trade needs to have the profit extracted quickly without doting around i.e. falling in love with the profit, as high probability scenarios are fleeting and will “puff” be gone before the trader can reel the fish in. The market is not going to allow high probability in plain view for all to see and exploit for very long.
Mr B’s traders equation can help with these decisions on whether or not a trader should take a trade in the first place and the probability of that trade rendering a successful outcome.
