dojirock wrote:Hello Mo,...
Your maximum space should be about 4x greater than your minimum stop loss.
Let's say that your maximum stop is 36 space with an initial position size of 8 units:
If you scale in 2 + 2 + 2 + 2 then your space lost is
2) 1/4 * (entry - stop)
2) 1/2 * (avrg - stop)
2) 3/4 * (avrg - stop)
2) avrg - stop
If you liquidate your trade then simply replace the stop price
with your average exit price.
You could say that your 'real space', at 2 units, is (8/2) * 36 but I think that it is better to think
of the distance to your actual stop loss as your space and your 'real loss' as a fraction of space,
(2/8) * 36 or 9 pips...leaving you with 8 units and 27 space.
Space is simply the utilization of every gram of your total risk.
Just as we trade to a goal and not through a goal we risk to a percent and not through a percent.