The level you enter at decides your stop distance, and therefore your size
The three entry levels are not interchangeable: each has a different distance to the same stop, so each implies a different position size.
Key takeaway
- The stop is fixed at 78.6% regardless of where you enter, so a shallower entry means a wider stop and a smaller position
- Entering at 61.8% gives the tightest stop and the worst-looking chart, which is the usual trade-off
- Both ends are defined before entry, so the reward-to-risk ratio is a filter you get for free
Same stop, different distances
The stop sits beyond 78.6% wherever you entered. That means the three entry levels imply three quite different risks on the same setup.
| Entry level | Entry price | Stop distance | Relative position size |
|---|---|---|---|
| 38.2% | 118.5 | ≈10.2% | 1.0× |
| 50% | 115.0 | ≈7.5% | 1.4× |
| 61.8% | 111.5 | ≈4.6% | 2.2× |
At the same account risk, the 61.8% entry supports a position more than twice the size of the 38.2% one. The deeper entry is also the one that feels worst, because the pullback has gone further and looks more like a reversal.
Scaling across levels
The standard resolution is to scale in: a partial position at 38.2%, more at 50%, the remainder at 61.8%. This captures the shallow retracements that never reach the deeper levels while keeping the average entry closer to the stop.
- Decide the total position size first, then divide it across the levels. Otherwise each tranche is sized as if it were the whole trade.
- The stop is the same for all tranches — beyond 78.6%. Do not give each entry its own stop, or you have three trades pretending to be one.
- If price never reaches the deeper levels, you hold a smaller position. That is correct: a shallow pullback in a strong trend is a worse entry price, so a smaller size is appropriate.
The free reward-to-risk filter
Because both the stop (78.6%) and the first target (the prior swing extreme) are on the chart before entry, the ratio is computable in advance.
A 38.2% entry with a stop at 78.6% and a target at the prior high often produces a ratio barely above 1. That is worth knowing before entering, and it is a legitimate reason to wait for a deeper level or skip the setup entirely.
Common questions
- Should the stop be at 78.6% or beyond it?
- Beyond, by enough to clear ordinary noise. A stop exactly at a level that many participants are watching is exactly where a brief undercut will reach before reversing — which is a loss taken on a setup that then works.
- What if the setup only works at 61.8%?
- That is the normal outcome for a method with three entry levels: most trades fill at one of them. What matters is that you sized each tranche as a fraction of the total rather than sizing the 61.8% entry as though it were a full position on its own.
The ideas behind it
This system assumes you already know these. Each one is explained from scratch in Investing 101.
These are documented methods described for study. Nothing here is investment advice, a recommendation, or a claim about future returns — every system on this page has losing periods, and the pages say where.
Reading about a system is not having one.
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