It transfers your small chart experience to larger charts.
Compare using an 80 pip stop and targeting 120 to 200 pips to a 5 SIXTEENS stop and targeting 7.5 to 12.5 macros.
With an 80 pip stop my brain looks at the large number and says "ok, I am risking 80 pips" because when it has a lot
of something to work with it goes into "sure, why not" mode.
The first question that I am going to ask when using 5 SIXTEENS is if I really need to risk 5 of something on this trade.
With 5 of something my brain looks at the small number and says "Five! Only five! How about we risk 2 or 3?"
This is the macro level (position size) and pips of risk:
01: 6 to 8
02: 10 to 14
04: 16 to 24
08: 24 to 40
16: 32 to 64
This is the macro level in lines of risk:
01: 6 to 8 ($16/pip, 16 x 8 = $128)
02: 5 to 7 ($8/pip,(8 x 2)7 = $112)
04: 4 to 6 ($4/pip, (4 x 4)6 = $96)
08: 3 to 5 ($2/pip, (2 x 5 = $80)
16: 2 to 4 ($1/pip, (1 x 16)4 = $64)
With pips you can't really see that our intent is to use a larger chart to get a better deal, comparatively smaller stops.
In the past I have told people to plan to trade a large chart and then don't; we are not so much interested in trading large
charts as we are reaching a specific goal within a specified amount of time using a certain position size.
Reduce risk, make it unlikely that you will take a big loss.
Price gapping 24 pips is not alerting you that there are fast profits to be made, it is telling you that you are going to get hit for 3 risk-boxes
in one blow and then tossed around for 3 more losses before moving in your direction.
People measure pips like they eye-ball stacks in poker, they see the stack across the table and they wonder why it is so hard to acquire it...
there is a very real and dangerous opponent guarding that stack, that's why
If you want that stack then you are going to have to take it piece by piece and if you ever take the whole thing it is because both players agreed
to flip a coin.
Not sure why but this post really got me to laughing.
Good Morning it is.