Equity Stops

The Goat Uses Equity Stops

I recently did a poll on twitter and asked my subscribers not to participate as it might skew the results.

Nearly three-quarters do not think equity is the most important aspect of successful trading.

For many reasons equity is hands down the most important aspect in trading. My subscribers know this. And my students who read my Medium articles but are not subscribers also know this.

Only 75% of the respondents got this wrong. Frankly, I was expecting 90% wrong so I suspect the many non-subscribers familiar with my work participated.

I did get one worthy reply worth sharing.

First, stops are generally placed at “magic points.” Below lows or above highs, tend to congregate, and are easily tripped by short-term manipulation. A much better method for stop-loss placement is simply to risk a portion of equity, rather than a magic point on a chart.

Second, risk-reward is a widely held subjective myth. While risk can be measured objectively due to equity, the reward cannot be measured…