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real world stops and risk reward ratio.

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mcteague View Post

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?

I don't know the answer.

It is important, though that "in the real world it is fine." There may not be a good theoretical (non-real-world ) answer, but having an answer that works is, after all, important.

I would welcome other thoughts, for the same reason that @mcteague posed the question. It seems that it should be possible to get a better grasp on the whole issue. I know there are formulas of one sort or another, but do they satisfactorily do the job?

Or perhaps should one just have a somewhat arbitrary rule that keeps loss in check and just live with it?



Edit: similar thread here:

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