To close or not to close?!?!

Yatman1 · Mar 12, 2009

Hi All,

I have been trading sporadically for the last 12 months and have recently began taking things more seriously by adopting simple, price action based set ups, with trade length being between 30mins to 2hrs on major currency pairs.

I have achieved varied success but seem to be coming up against a regular problem on my losing trades. My entries are generally good with the direction going in my favour initially but before my limit is reached the direction changes and i am stopped out!

I am sticking to a risk return of 3:1 (stop loss 15 pips, limit 45-50pips) on most of my trades with a success rate of approx 1 in 3 (just above break even in my p/l over last 3 months).

It may seem obvious, but should i reduce my risk/return to increase winning %. I am looking for traders thoughts on risk/return ratios, how this affects their trading and what I should experiment with moving forward??

I thankyou for your thoughts in advance

£10kLoser · Mar 12, 2009

Having a stop of 15 and a limit of 45 is not a risk return of 3:1 as you have seen by the fact that you maybe break even. Your stops surely need to be much bigger and it sounds to me as if you don't have a strong system - just basically taking a gamble and hoping your '3:1' will swing it in your favour.

Given the spread, you'd need very accurate signals to make a profit with these stops and limits. Even given good signals, I usually use more like a 1:1 ratio or a 40 stop and a 50 limit.

The way to make a profit is by having good signals, not by having a '3:1 risk ratio'! If you signals are good, then a 1:1 will make a profit and give you a far better chance of surviving a retrace.

The other issue is, what time frame are you using?

foredog · Mar 12, 2009

It is very difficult to have a fixed pip stop, if you use the previous candle high if shorting as a stop then it could vary from 10 - 100 pips, adjust your size accordingly

if willing to risk $100 and 10 pip stop trade $10 a pip

50 pip stop trade $2.

then maybe trail your stop in some way, if you're getting to more than 2:1 on these before reversing then thre should be some opporunity to move up you're stop a little

fibonelli · Mar 12, 2009

Read my thread.

http://www.trade2win.com/boards/first-steps/54992-why-high-expectancy-trading-so-important.html

Yatman1 · Mar 13, 2009

£10kLoser said:
Having a stop of 15 and a limit of 45 is not a risk return of 3:1 as you have seen by the fact that you maybe break even. Your stops surely need to be much bigger and it sounds to me as if you don't have a strong system - just basically taking a gamble and hoping your '3:1' will swing it in your favour.

Given the spread, you'd need very accurate signals to make a profit with these stops and limits. Even given good signals, I usually use more like a 1:1 ratio or a 40 stop and a 50 limit.

The way to make a profit is by having good signals, not by having a '3:1 risk ratio'! If you signals are good, then a 1:1 will make a profit and give you a far better chance of surviving a retrace.

The other issue is, what time frame are you using?

I wouldn't say gambling, i am trying to develop & stick to a system with tight stops. But, given the ratio you use and feedback from the other posts the consensus is that a lower risk/reward ratio is the way forward thus increasing win rate and profitability.

In theory if 90% of my trades take 10 pips profit then a stop as great as 80 pips would still be profitable. 0.9*10-0.1*80 = ev + 1 pip per trade

(obviously woud be aiming for tighter but the theory still works)

foredog · Mar 13, 2009

In theory yes, but if you have three losers in a row you would then need 24 consecutive profitablt trades to reach breakeven.

What if you had 5 losers in a row?

TickerHeads · Mar 15, 2009

While I always used fixed target orders, it's not always realistic to think price will always hit your target or trade thru your target. I cannot tell you how many times price has hit my target (or came within 1 tick of the target) only to reverse. Usually when this happens I'll make a judgement of momentum to figure out whether I should get out at a lower price or wait. It's not worth a few ticks for your psyche to watch price retrace all the way back to your orig entry point. Just my two cents.

Crap Buddist · Mar 15, 2009

Yatman1 said:
Hi All,

I have been trading sporadically for the last 12 months and have recently began taking things more seriously by adopting simple, price action based set ups, with trade length being between 30mins to 2hrs on major currency pairs.

I have achieved varied success but seem to be coming up against a regular problem on my losing trades. My entries are generally good with the direction going in my favour initially but before my limit is reached the direction changes and i am stopped out!

I am sticking to a risk return of 3:1 (stop loss 15 pips, limit 45-50pips) on most of my trades with a success rate of approx 1 in 3 (just above break even in my p/l over last 3 months).

It may seem obvious, but should i reduce my risk/return to increase winning %. I am looking for traders thoughts on risk/return ratios, how this affects their trading and what I should experiment with moving forward??

I thankyou for your thoughts in advance

You mention taking (entering) trades based on simple price action setups, so why not examine taking exits based on that same fluid philosphy ?

Static stops based on a fluid approach generally results in mud ! :?:

Also you say your sticking to the return of 1-3 , whats the market sticking to ?

I see no problem with being or taking a two way static approach to things, but mixing fluidity of entries & statics on exits will perhaps lead to cognitive dissonance , which will likely hinder individual trader interaction & performance with his chosen asset.

And I'm sure this is a fairly typical experience that traders are exposed to, and a situation that needs to be understood, in order for conscious knowing progress to advance.

just thoughts..

TickerHeads · Mar 15, 2009

My thoughts exactly Crap Buddist.

To close or not to close?!?!

Yatman1

Junior member

£10kLoser

Established member

foredog

Experienced member

fibonelli

Experienced member

Yatman1

Junior member

foredog

Experienced member

TickerHeads

Junior member

Crap Buddist

Senior member

TickerHeads

Junior member

Similar threads