BarroMetrics Views: Left Brain Thinking III
Yesterday I said that Trader B had to exit immediately. Why?
Figure 1 shows that, given his win rate, his required reward:risk return (2:1) is secured at 0.8103; in our example this was where the AUDUSD was trading. So, he had no safety moat; and with the AUDUSD now trading at long-term support, a bounce has to be included in the possible scenarios – especially with the view I have taken on the FOMC (see blog later tonight around 8:00 PM HK time).
For risk management reasons, then, Trader B needs to exit now.
Trader A on the other hand, given his win rate, can afford a bounce of 520 pips. That being the case, Trader A can review his technicals to see where he can place his trailing stop in an attempt to maximise his core profit exit. As long as the trailing stop is below .8555, he will secure his targeted outcome, even if a bounce occurs.
So there you have it. Feel to comment.