The Power Of Pyramiding / Scaling Up

Let's say you found a low risk setup but a lower probability and a high risk setup with a higher probability.
Logically, the lower probability setup must have more signals than the other one. With this case, you had a powerful setup with a low risk.

Lets make a calculation:
1. Assume your low risk setup have only 40% chance to emerge. And the Risk Reward Ratio 1:3
2. The higher probability have 70% chance with Risk Reward Ratio 1:1. It's logical that with high winning rate the reward ratio is lower.
Let's just say the first setup is pre-entry setup from second setup

Now all we have to do is combine the setup to become single profitable strategy but with only 28% chance winning rate.

Example :
Entry at lower risk probability with 1 contract followed by higher probability with 2contracts. From 100 trades, you only had 40 trades profit from the first setup. 60 trades small losses. And from 40 trades you only had 28 trades that follow through the second setup. rest of them is a break even since the Stop Loss from first entry must sufficient enough to break even. The calculation:
100 trades, 28 winning, 12 draw, 60 loss
The Reward : 140-0-60
Total : 80
Separate Setup:
1. 50 trades, 20 winning, 30 losses
Reward : 60 - 30
Total : 302. 50 trades, 35 winning, 15 losses
Reward : 35 - 15
Total : 20
Grand Total : 50

Same trades amount, more than 50% profit. Even if you widen the stop loss from the combine setup so failed 2nd setup are risk 1 instead of 0, you still have the total 68 or 36% higher profit.

"Its not about being right or wrong, rather, its about how much money you make when you're right
and how much you don't lose when you're wrong." ...

George Soros

Or in different way to say with same meaning.

" It's not how much winning or losing you have, it's about how much money you make or lose in the end "

Next topic about "Accepting Stop Loss As Part Of Business", the most important lessons in my trading career.