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Leo:
The 2% rule is a rule of thumb that says you should not risk more than 2% of
your total equity on any one trade. Not 2% of the trade. If the risk is too
great, reduce the trade size. Don't manage risk by squeezing your stops
tighter than the pattern or system needs; you are not giving the trade room to
work.
Also, 2% is just a rule of thumb. Personally, I don't use it, but each
trader/investor's own comfort level is different.
Your amount risked versus potential reward may be high, but you also need to
consider the win rate of your system. Bulkowski found that rectangles have a
low failure rate, so based on this, perhaps a trader/investor can accept a
less attractive risk/reward. You can always pick and choose your trades, too.
If the risk is too great or it's not a clean pattern, walk away. Another
trade will come along soon enough.
What you are actually asking about here is risk management. I would suggest
you read Van Tharp's "Trade Your Way to Financial Freedom," and if you have a
mathematical bent, Ralph Vince's "Portfolio Management Formulas."
----- Original Message -----
From: <leo.timmermans.lt@xxxxxxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Sent: Friday, November 17, 2000 12:17 AM
Subject: Re: Rectangle Stop Loss
> Hi,
>
> Thanks for your answer. This was my initial tought too but I discarded it
> for two reasons.
>
> 1-) the distance between the two trendlines often amounts to a respectable
> percentage which
> is often too much to loose considering the 2% rule
>
> 2-) if you calculate the reward (or risc) factor with such a stop loss
> position, the reward factor is
> allways a little bit less than one (price objective =< stop loss) and thus,
> considering a reward
> factor has to be >= 3 (according to the books ...) such a breakout would
> never be tradeable ....
>
> Any suggestions ???
>
> Placing the stop loss just beneath the lower trendline only pays when you
> enter at this trendline,
> in my opinion.
>
> Regards
> Leo
>
>
>
> gcwallace@xxxxxxxx@INTERNET@xxxxxxxxxxxxx on 11/17/2000 04:27:38 AM
> Please respond to metastock@xxxxxxxxxxxxx@INTERNET
> Sent by: owner-metastock@xxxxxxxxxxxxx
> To: metastock@xxxxxxxxxxxxx@INTERNET
> cc:
> Subject: Re: Rectangle Stop Loss
> Leo:
>
> Look for a support level between the upper and lower trendlines. If it
> is not too big of a risk, an even better stop level would be just below
> the lower trendline, which offered solid support previously.
>
> Hope this helps.
>
>
> ----- Original Message -----
> From: <leo.timmermans.lt@xxxxxxxxxxxxxxxx>
> To: <metastock@xxxxxxxxxxxxx>
> Sent: Tuesday, November 14, 2000 2:20 AM
> Subject: Rectangle Stop Loss
>
> > Hello,
> >
> > I'm wondering where to put the stop loss when trading an upper breakout
> > from a rectangle (long-side of course ... ). Is it below the low of the
> > latest bar before the breakout?
> >
> > Thanks
> > Leo
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