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Originally Posted by awcapital
What is a tight stop ??? 1 pip 30 pips 100 pips ? Its all relative. A system is deemed to have a 50:50 win loss ratio (based on certain backtesting criteria) means that it will get stopped out just as often as it wins. That's why it's 50:50. Whether one thinks the stop is tight or loose is irrelevant.
Alternatively, in a 50:50 system, to breakeven one has an equal chance of getting stopped out as be in a winning trade. The $ breakeven point is when the winnings ($) = stop loss size ($)
I hope it makes sense  |
If price is random, then it has 50:50 chance of going either way. However where do you think it will touch first, 30 pips away or 300? Thus you cannot say "Oh, I'll set my stop loss at 30 and take profit at 300" . While it is true that your max win to max loss ratio will be 10-1. Your frequency of such wins will be MINISCULE.
It is true that if your profit/loss ratio is 3/1 your wins are much larger. But with 3/1 ratio you will be stopped out 3x as much, thus your mathematical expectency is 0 at best.