[Risk Management trick] Tilting the "Math" in your favor!We all try to find the strategies which offer best possible win probabilities.
Yet, we often overlook another crucial component of increasing your odds of winning => risk management.
Today, I am going to show you how you can use a simple risk management trick to tilt the "Math" in your favor.
Would you like to increase the output of your strategy by 25% without doing anything extra?
Imagine a 3R win suddenly increasing to 3.75R with no change in the strategy at all.
Consider this trade...
We are trying to setup a sell trade with a very defined -1R risk and +3R profit.
If we were to loose this trade, we will loose 1% of our capital - and if we win, we will make 3% in return (3RR).
Here, we assumed that we'll exit the trade when price moves -1R completely against us.
What if, we pivot our thinking and assume the trade is lost when price has moved -0.8R : because if the trade goes that much against you, there's a very high probability that it'll hit your stop loss too. There is no reason to pretend that it can still turn around at the last moment. Murphy's law truly applies here - "Anything that can go wrong will go wrong".
If we do really pivot our thinking, lets see how it works in our favor!
The Stop loss is now updated and set at -0.8R
So a win will still give us the same 3%, but the loss will only wipe out -0.8% from our account.
Now because our profit targets are still setup as per the original 1% trade, you can now see that we now get this extra reward if our trade hits its original 3R target
The moment we draw 3R as per our new -0.8R stop loss, we get this - You can see how the 3R with -0.8R stop loss is achieved much before than the 3R with -1R stop loss (obviously)!
That means, the extra reward you got when the trade reached your original 3R - is additional profit which you now have - without ever changing your trading strategy!
3/0.8 = 0.75 (which is 25% of your original 3R target)
0.75/3 = 25%
You now have extra an 25% reward for free!
New RR = 3.75
This is a very beautiful math equation for yet another reason!
Imagine you lost your trade with a -0.8R => the additional 0.75R you will achieve (for free) from another trade will extremely quickly cover up anything you lost.
As you can see, we can really use sound risk management techniques & Math to our benefit.
This is called : Tilting the "Math" in your favor!
Formula
Understanding Traditional Pivot Points (Formula Diagram)Learning about market Pivot Points is powerful information as you can see in this 15 min Bitcoin session chart, the Pivot Points and their components (S1,R1,R2,R3, etc) are clearly respected by price action
I did a pretty extensive search for a diagram/drawing to better understand the formula for pivot points and I noticed there really are none...
This snapshot of a chart will help you to better understand how the Pivot Points are established as time goes on in the market...
In the diagram you can clearly see what a session term is, what its high/low and close are...
The formula for establishing the next session's Pivot Pivot is: high of previous session + low of previous session + close/3 = next session's Pivot Point
I will be making other diagram's of other components of a session such as the S1,S2,R1,R2,R3, etc.
If you're interested in learning more about Technical Analysis, subscribe to my youtube channel: "Kick Back Time"
The more subscribers I get there, the more I will be encouraged to produce educational videos
* You can find this indicator on Trading View by doing a search and it should come up right at the top. I like to use the standard/traditional
