The cost of an error in plain words — visible before the entry

It starts with two places that already stand on the chart. Point A is where the idea stops being true. The target is the upper boundary of the range. Both are known before the entry, so the distances to them are known in advance as well.

The distance from the entry price down to point A is what an error costs: this much the market takes for checking the idea. In money everyone counts their own, and the distance on the chart is the same for all. In the case worked through — gold, daily chart, the winter of 2020–2021 — point A is close, and the target is almost four times farther. The ratio is almost four to one, and that is the whole geometry of the idea, counted before the entry.

What the ratio is for

The ratio answers one question: how often you have to be right to avoid losing. At a ratio of three to one it is enough to be right one time out of four. At two to one — one out of three. At one to one — every second time. In the case worked through the ratio is above three, so one out of four is enough with room to spare.

It is convenient to count in stakes: one idea, one stake of risk, and how much that is in money everyone decides for themselves. Take a long series of decisions with the same stake, where every third one turns out right. With one geometry that series comes out a plus, with another a minus, and the share of right decisions is the same in both. The only thing that tells them apart is the ratio.

One entry price turns the ratio over

The same plan, only the entry price is different — at the top of the move. Point A stayed where it was, the target stayed where it was, and the distances swapped places: it is now farther down to point A than up to the target.

The ratio has turned over, and now you have to be right in almost two cases out of three. The same plan, the same markup — one entry price changed. So the entry price is not a detail: it is half of the geometry, and it is the only part of this that is chosen.

There is more than one way in

You can go in right at the break, on a return to the break line, or after a close holds above it. Each way has its own entry price and therefore its own geometry: the closer the entry sits to point A, the shorter the cost of an error and the longer the way to the target.

What that costs is the risk of getting no trade at all. In the case worked through the return never came: the closest approach did not reach the line and price went up. Waiting for a return sometimes means not entering.

So the main question is not how much of a deposit to put at risk. If the cancellation is far and the target is near, the idea is a poor one at any size of the stake — and this is visible before the entry, not after.

The cost of an error can be measured only where point A and the boundary of the range stand on the chart before the entry. The FocusProfit Trade Model indicator assembles ranges from confirmed extremes and carries the break line, with point A underneath it, onto the working chart — so both distances are measured off the markup rather than eyeballed.

This is one of the lessons of the introductory «In Plain Words» course: one term per lesson. The topics are covered in more depth in the Learn section, and the causality in full is in the methodology.