Re: Risk Reward Myth Quote:
Originally Posted by XEC10 Expected_gain = Expected_win x Probabilty_of_win  Expected_loss x Probability_of_loss
We try to choose the entry, target and stop so that the expected gain is positive and that the risk:reward is sufficient:
RR = Expected_win / Expected_loss. 
I agree more or less but I have a few comments to make. First, the formula you wrote holds only at the limit of large numbers, meaning that you need hundreds of trades for it to produce a stationary value for the expected gain.
Second, Expected win = expected loss = expected value of a trade. RR is usually defined as profit objective/stop loss.
Regardless all the semantics, see how this guy proves that Expected_gain > 0 is equivalent to saying that net profit is zero. The two statements are equivalent: http://www.priceactionlab.com/Blog/2...edgepartii/
Meaning that if you make a net profit, expected_gain must be positive. Simplicity is a virtue.
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