Stops and Risk seem to go hand in hand, but I feel stops (especially tight stops) give one a false sense of security and an inaccurate assessment of risk. I set stops/targets in conjunction with the probability of the stop/target actually getting hit. The average daily range in the ES over the last two weeks is around 50 points! The ATR on a 15-min time-frame is around 7 points. In a volatile market like the one we're in these days, the probability of a 1-2 point stop getting hit is extremely high. By the same token, the probability of a 2 point profit target getting hit is also high. On most of my setups, I'm using 5-7 point stops with 2-5 point profit targets. When I enter a trade, I judge the probability of the stop/target getting hit. If the probability of the 3-5 point profit target getting hit is higher than the 7 point stop-loss getting hit, I take the trade. I never enter the market with full size. Instead, I add to the position, even if it goes against me as long as the setup is still valid. But I only add to the trade uptil my stop-loss level at which point I accept the max loss on the trade. This requires a high hit-rate since one losing trade could wipe out 2-3 winning trades, and I'm sure people who strictly follow a risk/reward rule (1:2, 1:3 etc) will disagree with this methodology.
I'd love to get some feedback on this.