Disliked{quote} Hi Jack, how do you determine the optimal entry level? Do you use a take profit projection, and then calculate the maximum acceptable risk based on your preferred 1:5 RR?Ignored
ex:
if you set your entry as per (1)(i) above, Long @1224.88, assuming a position size of 1 lot with a Stop Loss @1215.31, your risk upon entry is 957$.
if you choose option (1)(iii) above, Long @1217.00, assuming a position size of 1 lot with a Stop Loss @1215.31, your risk upon entry is only 169$.
Assuming we close both trades at exactly the same price (whatever the closing price will be - all things being equal), the trade which offers the lowest risk upon entry will also be the one that happens to offer the highest reward - highest payoff.
To make things a little more obvious, let's assume we close both trades @1240.00, we have the following:
on my first entry, Long @1224.88, my risk was 957$ and my closing profit is 1,512$ which means a RR of 1:1.58,
on my second entry, Long @1217.00, my risk was 169$ and my closing profit is 2,300$ which means a RR of 1:13 (Risk:Reward)
You can see that by significantly reducing your risk upon entry you have also, simultaneously, dramatically increased your RR. The optimal option being more than 8x more profitable than the first one!!
Using the FIA, traders need only "Sell the Highs" & "Buy the Lows".