COT
Also: Commitment of Traders
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In the chapter
VIIIRisk management
The arithmetic that keeps you alive
From the same chapter
- RThe unit of measurement: 1R is what you lose if the stop is hit. Everything is measured in R, not in currency.
- Structural stopA stop is not a distance: it lives where the idea dies, beyond the extreme of the sweep.
- Position sizeRisk ÷ (stop in points × point value), rounding down. It is derived from the stop, never the other way round.
- Point valueWhat one point per contract is worth: ES $50, MES $5, NQ $20, MNQ $2. It defines how many times you can be wrong.
- Break-evenMoving the stop to your entry. It is justified when STRUCTURE advances, not when you are +1R: otherwise it takes you out of normal retracements.
- PartialClosing part of the position. It trims expectancy and buys staying power: it is a psychological tool.
- Time invalidationClosing because the expected move has not arrived in its window, even though the stop was never hit.
- Esperanza matemáticaAverage R per trade: (win rate × average win) − (loss rate × average loss). It is the only thing that decides whether a method wins long term, which is why a 40% win rate at 1:3 earns more than 70% at 1:1.