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2006issue C021-4

Keep the stop that authorized the entry

A trading psychology process critique says a position often outlives the opinion that justified it. The stop-loss order and the risk-reward ratio stay fixed from the entry that authorized the trade.

  • A position often survives after the opinion that justified it has already been invalidated.
  • Invalidation is defined before entry, and mechanical stop-loss orders stay in place even when a pullback tempts cancellation.
  • The risk-reward ratio is fixed from entry, target, and stop before the trade is placed.
  • Widening the stop after entry is described as converting a planned three-to-one payoff into an even or worse-than-even payoff.
Entries in this reading3 entries
Current trackRisk-reward ratio78 readingsStop-loss order297 readingsTrading psychology process376 readings

When the justifying opinion is already gone

The process critique is that a position often survives after the opinion that justified it has already been invalidated. In the trading psychology process, invalidation must be defined before entry, and mechanical stops are to stay in place even when a pullback tempts cancellation.

Observable bounds, not a session forecast

Recent highs and lows are used as observable bounds. The procedure is to recognize a failed extension when it occurs, not to forecast the session in advance. An initial protective stop is placed at the prior range low because a break of that bound is treated as a point where downside movement can accelerate.

A holding period set by price

Holding period is treated as a price-action rule. A stop or target hit sooner than expected is executed rather than held to a mental clock. Once a target is reached, a trailing stop is allowed a limited pullback and is tightened as price nears longer-horizon resistance.

One testable procedure

Candidate selection is framed as one testable procedure using price, time, volume, and velocity, then checked against historical bars. Those historical checks are described as weighting recent price action more heavily than older history.

Risk and reward fixed from the entry

Risk and reward are fixed from entry, target, and stop before the trade is placed. Risking one dollar to make forty cents is cited as a rejected setup. Widening the stop after entry is described as converting a planned three-to-one payoff into an even or worse-than-even payoff.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
11 of 27 in the Risk-reward ratio track
20061-1 pp.Next on Risk-reward ratioBound the loss with a risk-to-reward filter before entryNearby support and resistance reshape entries and exits, and those levels are treated as inputs to capital preservation, the central trading problem.
All readings on this track · 27 readings
  1. 1987Precommit the stop and require a surplus payoff
  2. 1987When open losses overwrite precommitted exit rules
  3. 1991Ranking month-end holds with risk-reward and stops
  4. 1994Evaluating percentage profit exits on trend-following averages
  5. 2001Construct reward to risk before entry
  6. 2003A pre-trade readiness checklist for entry, abstention, and risk
  7. 2003Evaluating out-of-the-money strikes with saddle premiums and implied volatility
  8. 2004A critique of one-procedure trading decisions
  9. 2004Mechanical stops leak intent and misprice losses
  10. 2004Implied-volatility premium on rate indexes
  11. 2006Keep the stop that authorized the entry
  12. 2006Bound the loss with a risk-to-reward filter before entry
  13. 2007Audit the operator before abandoning a system
  14. 2007Failed-break slingshot reversal rules
  15. 2007A system-management template that sets the stop and the required reward before entry
  16. 2007Construct a pre-trade style envelope for entries and skips
  17. 2008Systems that skip the three decision gates
  18. 2010Four-gate veto before trend entries
  19. 2012Construct a trading plan as one written procedure
  20. 2012Forex stops and reward targets by quote increment
  21. 2013The average directional index as a lookback cluster and a risk-reward bound
  22. 2014A three-step worksheet for VIX futures tick value and low-vol risk-reward
  23. 2014Binary option premia, fees, and pre-expiry risk-reward
  24. 2015Selling far out-of-the-money commodity option premium as a forgiving timing case
  25. 2016Prepaid option spreads that bound range-day risk and reward
  26. 2016Pre-trade risk-reward versus instinctive exits
  27. 2020Bounding a short-dated option spread with a stop, a gap remainder, and a credit exit
By fieldDecision process416 readingsBy year2006150 readings
All 78 readings tagged Risk-reward ratio
Also on Risk-reward ratio5 readings
1987When open losses overwrite precommitted exit rules2004Mechanical stops leak intent and misprice losses2004A critique of one-procedure trading decisions1987Precommit the stop and require a surplus payoff1991Ranking month-end holds with risk-reward and stops