That is YOUR mindset.
Volatility increases both potential risk, and potential reward.
Which volatility measure for setting stops ?
- Thread starter syswizard
- Start date
That is YOUR mindset.
Volatility increases both potential risk, and potential reward.
You're wrong. Dealing with stops first is more important....thus the risk side takes over as the predominant consideration.
I've witnessed this with several traders recently in this volatile market.
They went from winning to losing by not adjusting stop placement for volatility.
Reason: their systems never got a chance to take advantage of the volatility to their advantage....they were getting stopped out so much !
Adjusting stops and targets for volatility is not a 1:1 ratio. Your stops may have to adjust 200%+ for a 100%+ adjustment in target. This only makes sense to account for the proper risk-reward balance in light of the volatility.
Important note: when markets are "normal", traders don't have to worry about these details. Right now, it's imperative to adjust stops and targets properly.
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This convo now reminds me of the forever argument about win rate...
Where the guy with a 95% win rate loses his gains on the 5% of losing trades.
It is true volatility is not a ratio. But it is equal opportunity: it applies to both the potential risk and the potential reward. And yes, as a trader risk is (or should be)predominant, and it(risk) is omnipresent regardless of the market environment. Widening a stop without adjusting the target is merely taking on added risk. This is amplified if reduction in trade size is also employed in addition to a widened stop. If there is no adjustment for the exit, the advantage of volatility will never occur.
Where the guy with a 95% win rate loses his gains on the 5% of losing trades.
It is true volatility is not a ratio. But it is equal opportunity: it applies to both the potential risk and the potential reward. And yes, as a trader risk is (or should be)predominant, and it(risk) is omnipresent regardless of the market environment. Widening a stop without adjusting the target is merely taking on added risk. This is amplified if reduction in trade size is also employed in addition to a widened stop. If there is no adjustment for the exit, the advantage of volatility will never occur.
You got it all wrong. In the examples I was talking about, win rates that were about 50% went much lower....due to all of the stop-outs. This is typical of discretionary swing trading systems in ES/NQ....where you win on half the trades and do well when your average win/loss amount is over 50-50.