Getting to CP just by tweaking your stops and targets.

I want to revisit an oft mentioned topic that I wrote about back in the early days of this blog such as this post.

A critical part of a trading plan is the trade management. There are three legs to the stool of trade management that are important:

1. the stop
2. the target
3. the win rate

The math has to work!

I have often said that a high win rate is important to me. That's a psychological dependency. So my trading style takes that into account.

For example, if I have, say, a 75% win rate then I can have a stop to target ratio of 1: 0.34 and be above break even. If I have a win rate of 34% then I can have a stop to target ratio of 1:2 and still be just above break even.

The math of this is critical for being CP. The style of trading doesn't matter but it needs to be created around these numbers.

So the starting point to your methodology is finding your trading pictures that will make you CP. As, say, a 34% win rate trader you can create a stat of average winners much more than twice your losses then you can make a good living.

If you are not CP then maybe its possible to get to CP by tweaking just this trade management portions of your trading plan. You may have the right entry strategy but are managing your exits incorrectly. But it requires discipline.