Risk Tolerance

Today JP was talking about why he sometimes modifies his entries for the benefit of us.

Say JP determines that he is going to short at 1201.00 with a MacGyver at 1202.00 and a stop in the 1202.50 - 1203.00 area.

Instead of doing this he works 1202.00 which is where his MacGyver (2nd entry) would usually be which makes his initial entry closer to his exit and this reduces the risk/exposure of the trade. The downside to this is that some trades will be missed because the market never trades up there. (We saw this happen this morning where JP missed a short that he was trying to enter at the MacGyver level instead of his traditional level.)

This gives us (the learners) 2 options:

If we have a lower risk tolerance then we enter at the MacGyver entry and risk less. The downside is that we will miss some trades. The upside is that we will lose less on the trades we get stopped on.

If we have a standard risk tolerance then we enter at the traditional level. You don't have to MacGyver but if you decide to do so then it would be prudent to enter half your normal size on the initial entry so that you are only at full size from the Macgyver level onwards.

Feel free to add your comments and corrections here...