Salt Lake City, Utah
Experience: Intermediate
Platform: NinjaTrader, Tradestation
Trading: Forex
Posts: 72 since Feb 2011
Thanks Given: 274
Thanks Received: 36
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I am currently only trading one lot and am having the following issue. I use major swing high/lows, trendlines, and whole numbers as support and resistance. In my mind I always picture these levels as holding when calculating my risk:reward. However since I like to always have a 1:2 risk:reward, this makes trading very difficult when support/resistance are close together. How do you view support and resistance? Are there levels that you count on holding and others that you don't? When calculating risk:reward do you always factor in the nearest support:resistance levels? Eventually all support/resistance levels break but how do I know when to discount a level when calculating risk:reward? I hope this makes sense. Below is an example of how a risk:reward ratio of 1:2 coupled with support/resistance would cause me to stay out of a trade.
Lets propose that I am looking to go long at 1.2960 because of a specific setup
The next closest resistance is at 1.2980, which would be a reward of 20 pips
This means by definition (1:2 risk/reward), my stop must be 10 pips or less
However, by pure PA, I can see that I need a 15 pip stop to invalidate the trade. This violates my risk:reward rule and I therefore pass on the trade
In my opinion, there are a number of solutions:
1. Reduce my risk:reward ratio
2. Somehow increase my target. To do this, I would have to dismiss specific support/resistance levels which is why I am posting.
3. Decrease my stop
Thanks.
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