Jiggly, fair point. Do you reckon trends go over 500 or 1000 points in a day or even in a series of day? Also, if I am correct 10 to 15 times, I am in a position to have one crisis day when the trend moves more than 500 to 1000 points against my position?
what are you trading?, get some past daily data and put them into a spreadsheet, calculate the median price ranges from the high-low. this figure will give you the average, i.e 50% of days ranges will be higher and 50% of days ranges will be lower than this figure.
also from the data you can calculate, historically, what the maximum and minimum ranges were and the probability that they occur. I know this for the markets I trade, also, what the probability is that it will move, 'x' amount of pips, for example, it trades in 20 tick moves, 80% of the time, 40 tick moves 60% of the time, 50 tick moves 50% of the time etc......
for such a strategy to work(and it is subject to many other variables), I would suggest, you look at a chart, and for example set yourself a trading 'timeframe' for when the net effect of all your activity should come good.
as I have already mentioned that something like this could work fantastically in a ranging market, you may want to look at the weekly chart and say, for example, this is the 10 year range, and i will account for these as my maximum and minimum points to trade within before total disaster....then calculate risk accordingly
after all, smaller trends make up larger ranges, but there will have to be a point when you must subjectively decide that enough is enough and reset everything, otherwise you will be carrying losing positions which could wipe out, weeks or months worth of activity.
it is possible to have so many 'winning' trades with such a strategy, but it will only take a very small string of losses to undo everything.
that is not something I am comfortable with personally.
