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real world stops and risk reward ratio.

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New York NY USA
Trading Experience: Beginner
Platform: esignal, ninjatrader,
Favorite Futures: Stocks
Posts: 114 since Oct 2012
Thanks: 59 given, 32 received

real world stops and risk reward ratio.

Trading is like any other form of gambling in that we should only place trades (bets) with a positive expectation. The positive expectation is determined by the chance of winning and the risk reward ratio. (stop to target)

However I find it is often necessary to place stops more widely than I might think technically accurate. This is to avoid market noise and random news based events. When I first started trading the E-mini I got stopped out like 4 times in a row. Even though the chart said that was where risk should be; I just got whacked over and over. So now when I mostly trade stocks I move my stops a little lower to avoid that. And often just go completely stopless, as I only trade high quality stocks.

If the trade is going against me I just exit. So I never really hit the wider stop. However this does not change the fact that the math is now wrong. On paper using the actual stop and target I am now in a trade with an insufficient expectation. I am making a bad trade. But in the real world it is fine.

What is the proper way of addressing this problem so that you avoid possibly fooling yourself and entering weaker trades than you should? Can I make the math right while still compensating for the real world?

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