Anyone familiar with Al Brooks Price Action or taking his course, I am a little confused on initial vs actual risk. I understand how they are calculated, but I am confused on how lowering your price target using actual risk still keeps a positive trader's equation. For example, if you have a 15 pip stop on a trade you determine you have a 60% chance of winning, a 15 pip gain would result in a positive trader's equation. If your actual risk only turns out to be 4 pips, why would the trader's equation be positive with an 8 pip gain, 2x the actual risk?
Actual risk is to be used to ensure that you are looking for a realistic target. I typically have a predetermined target before I enter the trade. I compare the stop required for the trade and it needs to be at least no greater then the target. If it is trade is not valid. Now if I enter the trade and say my actual risk was only half, then I may look for my target based off of that. So my original target would be 2x my actual risk. Again before you enter the trade you need to determine if you are swing and scalping... If you are swinging and your actual risk is only 4 pips then you are obviously going to look for a larger target. Say 3x. If you are scalping then you are going for 1:1 so you are exiting at anything over 4 pips.
Also a swing you are exiting with a trailing stop, and a scalp you are exiting on a profit taking limit order.
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