Optimal Risk .vs. Reward Ratio on FX trades

[Hayek]

Hayek, you are right about the 22.5 calculation which made no difference to the point I was making. BTW, by accout I guess you meant account and by expectany I guess you meant expectancy right? As I stated from the outset, it was simply an assumption. I was illustrating a way of assessing trading results that some may find useful in the very real world of trading (if they have not come across it already). Didn't quite see the relevance or usefulness to the rest of your reply and I was a little surprised to see you kick the academic skirting board without stating your purpose. If you want a pointless theoretical debate pop down to your local student union bar where I'm sure they'll oblige . For those who prefer real world applications which may improve their actual trading results, there is a good article worth reading here: http://tradermike.net/2004/05/trading_101_expectancy.html

What a sensitive MAN you are! I didn't write any word to illustrate your calculating was wrong. I just remind the thread starter if he trades frequently he may not only focus on the expectancy of profits each time.

 

[mcd]

What a sensitive MAN you are! I didn't write any word to illustrate your calculating was wrong. I just remind the thread starter if he trades frequently he may not only focus on the expectancy of profits each time.

Hayek, I may have misinterpreted your reply somewhat - no hard feelings

 

[roguetrader100]

Thanks for the advice. Yip, I would say that judging by most of the replies that I've received so far that I've kinda lost the plot a bit ito trading my own account. On the ZAR thing, I don't actually trade the ZAR for my own account but rather for one of the smaller banks here in SA on behalf of large corporate accounts. We deal for actual settlement and delivery therefore need to trade through the designated market making banks in SA (our excon regulations only allow certain banks to make a market on the ZAR) The buggars have the market sewn up over here and quote the local guys on a 500 pip spread. For corporates doing less than ZAR 10 Million per annum they're cracking them for a 25 cents spread (55 cent spread on the GBP/ZAR) Shocking!
Anyway, I've managed to make huge profits trading the ZAR for my bank but can't make any cash trading the EUR/USD on a 3 pip spread. I think it may have to do with capital and my unusually tight stop loss levels on my own account. I know what the prob is as I find that most of trades eventually go in the right direction........after I've been stopped out of course. I'm thinking I just need to knuckle down and place my stops wider to give the trade a chance. It's not quite as simple as that.........but may be.
Cheers and thanks for the help.

 

[adrip1]

Right guys, I wouldn't normally be placing a post desperately asking for help and advice but here goes : I've been trading FX for my own account for around 2 years and haven't made or lost a cent. Although I place good trades I can't seem to make any cash. Here's my story, I have this idea in my head that I use very short term 5 min charts to attempt to perfect my entry point on a trade that I have picked up using a combination of hourly and daily charts. Essentially what I'm looking to do is go for the 100-200 pip trades using a very short term entry point. I suppose this makes a bit of sense but the problem is that I'm using tight stops of 10-15 pips which is resulting in me getting stopped out of 85% of all trades (I've done an analysis of my account) Due to limited capital I tend to put a stop at my point of entry as soon as my trades go 10+ pips in the money. 65% of all my trades are stopped out for zero profit .ie. 65% of all my trades go into the money straight away but then the market ticks back and stops me out. I think I may have lost the plot here as I'm essentially risking 10-15 pips in the hope of making 100-200 pips. I would say that most of trades are fairly good and ultimately would have made some decent cash had I not been stopped out. Funnily enough I trade FX for a bank for a living and do extremely well (using fairly wide stops) but can't make a cent trading my own account. I seem to be limited by trading capital and my need to be trading these ridiculous risk.reward setups of 1:10 or 20.
Can someone give me advice? What is the ideal risk.reward profile and what would you suggest as both a min. and max. stop loss trading a USD 10,000 account? I have heard 1:2 or 3 and stop losses between 20 (min) and 50 pips (max)
When I read market reports and all that jazz, most of the banks seem to set these huge stops of around 100+ pips which would be helluva nice but not particularly realistic with my a/c size.
What do you guys think? Any help would be appreciated.

I DONT BELIEVE U TRADE FOR A LIVING BECAUSE WHAT U SAY MAKES NO SENSE AT ALL. HOW IS IT POSSIBLE THAT SOMEONE WHO KNOWS ANYTHING ABOUT FOREX TRADING EXPECTS TO MAKE ANY MONEY WITH STOPS OF 10-15. THEY ARE GONNA BE HIT ALMOST EVERY TIME. I THINK U R INSULTING OUR INTELLIGENCE BY SAYING THAT U TRADE FOR A BANK WITH BIGGER STOPS AND MAKE MONEY. SURELY ALL U HAVE TO DO IS LEARN FROM THAT EXPERIENCE AND REALISE THAT IF U HAVE GOOD ENTRIES, AS U SAY U DO, THEN U SHOULD PUT YOUR STOPS WIDER. WHAT IS THERE TO ASK? UR QUESTION IS NO QUESTION AT ALL. GET A GRIP MATE.

[Mod's note: Adrip1 please read our site guidelines, shouting online (using all CAPITAL LETTERS) is bad net etiquette. Also please tone down your posts, constuctive criticism is welcome, aggressive posts like this are not and will simply be edited or removed]

 

[hopefull]

Sorry to be blunt...

Disagree completely- I trade every day with stops at these levels and am a profitable trader.

It is often said that in order to be a consistently profitable trader you need an edge - one of the best 'edge's an individual trader can have is timing...

These instrument have a very wide range and even with a 3-5 pip spread the patient trader merely sits on his/her hands until the price reaches a key S&R level on the 60 min chart - then zooms in to the 5/1min TF's for possible entries, then back out to the 60 for scale-out and target levels.

I did not trade GBP's move this morning as the chart was less clear to me but the 60 min Euro chart was as clear as crystal - with the bounces off the uptrend support line overnight and a clear entry opportunity at 2991 off the higher low at 10:00 on the 1min chart.

Nothing clever about it either just basic TA stuff - ie. Bounce off uptrend support line,higher low - clear scaleout targets at 3015,3039 and resistance at 3054 where price popped through and is now testing it as support area.

It can be done.

H

 

[roguetrader100]

Fair enough comment. But if you were as good a trader as you make yourself out to be then you wouldn't have the time, in between sipping your Martinis on your private yacht, to bother yourself with pitiful traders such as myself. This is an anonymous website so why on earth would anyone want to lie about whether he is a trader or not. Who cares. Most traders don't make any cash so who really gives a hoot whether a person considers himself a trader or not. It doesn't mean you make any money. Look here, my question is rather amateurish but I've honestly been battling to try and figure out a strategy to trade my own account. Keep in mind that I'm funding my a/c with ZAR and not GBP. Makes a big difference when you are putting your entire salary on the line for one or two trades. I've been working on a few different techniques trying to ultimately hit the perfect trade every time and in the process have lost my way a bit. It happens and as a last resort I wanted to get a consensus as to what the guys out there are using as their stops. I thought I could figure out a way to trade and make cash using minimal stops but it hasn't worked out that way. So carry on and call me whatever but at the end of the day I've pretty much got what I wanted (in sound advice from some and a blasting from others) 'My stops are far too close'. It's been made very obvious to me. Even you've been a help by driving the point home even though you were clearly trying to be a **** and prove a point. Thanks.

[Mod's note: Edited for obsenities]

 

[hopefull]

ROFL - RT

I am not sure if your last post was directed at me or the previous poster.

If they were at me, then thats your call - I was merely trying to offer some ideas as the trading style you are describing is similar to my own and I thought that sharing ideas was what this site was all about...

I have tried to offer couple of live examples to simply make it clear that it is possible to have entry level stops within the 20 pip range by using the 5/1 min charts to fine tune your entry technique at key S&R level off the 60min chart...thats all.

All the best
H

 

[roguetrader100]

No bro, I apologise for that. My reply was certainly not directed at you as I have appreciated your help all along. Your post only came onto the site after I had submitted my post therefore came in after yours. Sorry about that. Yip, I would say that our techniques are very similar but I just haven't quite perfected it yet. Thanks for the advice so far though. Cheers.

 

[SvenFoster]

I sincerly hope that it wasn't directed at you hopeful as I for one have found your recent posts to be very informative.
I've been going in circles for donkeys ages and yours/others recent posts/(as well as the ones back in march about going solo) have helped big stylee.

cheers all.

ROFL - RT

I am not sure if your last post was directed at me or the previous poster.

If they were at me, then thats your call - I was merely trying to offer some ideas as the trading style you are describing is similar to my own and I thought that sharing ideas was what this site was all about...

I have tried to offer couple of live examples to simply make it clear that it is possible to have entry level stops within the 20 pip range by using the 5/1 min charts to fine tune your entry technique at key S&R level off the 60min chart...thats all.

All the best
H

 

[hopefull]

Great stuff -

Really all you need to do is draw and save your TL on your 60 min charts.

If you are flat then resist impulse trading by doing nothing until price reaches one of these levels.Then get real close and personal with the 5 or 1 min when it does.

Simply look for a higher 'swing' low in the 1/5 min TF's (in the case of a long) -ie. At a major support level on the 60 mins and apply the same in reverse.

To me its a common sense way to trade ie. the short term chart has now lined up with the medium/long term chart - High probability/low risk - tight stop on entry with good RR to target levels.

A big debate going on elsewhere in the site as to whether trading is really gambling or not - I treat trading in the much the same way as a professional gambler may run their business in only looking for low risk high probability set-ups with good RR .This way, long term the ODDS are in our favour...and the 3-5 pip spreads are less of an issue.

I know this maybe oversimplifying things but I can tell you that I don't sit here in turmoil every day trying to make up my mind what to do.This particular set up is very clear and anything in between is just noise...it is at the very core of good trading (buy support/sell resistance..scaleout and let 'em run)

Please don't give up this strategy it can work for you,may just take some more practise - that's all.

Also suggest studying Darktones' advice (Hi DT - I am 'Bonza' elsewhere....) He really knows how to play big swings off the longer time-frames.

Regards
H

PS.

Cheers Sven - I have received some great advice from this site and it helped me make a life changing decision - bad insomnia for 2/3 months initially mind you but worth it !

I wish you all the best in taking the plunge too in due course.

 

[adrip1]

Fair enough comment. But if you were as good a trader as you make yourself out to be then you wouldn't have the time, in between sipping your Martinis on your private yacht, to bother yourself with pitiful traders such as myself. This is an anonymous website so why on earth would anyone want to lie about whether he is a trader or not. Who cares. Most traders don't make any cash so who really gives a hoot whether a person considers himself a trader or not. It doesn't mean you make any money. Look here, my question is rather amateurish but I've honestly been battling to try and figure out a strategy to trade my own account. Keep in mind that I'm funding my a/c with ZAR and not GBP. Makes a big difference when you are putting your entire salary on the line for one or two trades. I've been working on a few different techniques trying to ultimately hit the perfect trade every time and in the process have lost my way a bit. It happens and as a last resort I wanted to get a consensus as to what the guys out there are using as their stops. I thought I could figure out a way to trade and make cash using minimal stops but it hasn't worked out that way. So carry on and call me whatever but at the end of the day I've pretty much got what I wanted (in sound advice from some and a blasting from others) 'My stops are far too close'. It's been made very obvious to me. Even you've been a help by driving the point home even though you were clearly trying to be a **** and prove a point. Thanks.

Temper, temper!! Chill out man. I am just typing this harmless stuff while wathching the screen. This is a lonely life and it is good to talk to people who do the same kind of stuff. Haven't got a yacht yet though. I find that kind of life boring. And what is up with martini mate? Let me tell u something. Trading is easy. It is easier than losing weight. I started about six months ago and i have never had a losing month. I spread bet 1-3 £'s a point and make good money. I made about £180.00 this morning just playin £1. I don't agree with hopeful. All the talk about an edge is bull. If u have emotional control and never lose more than an amount u can afford to lose, this is an easy way to spin money. Get this. If u start with £2000 and never lose more than £40 you will need to have 50 losses and no wins b4 u r wiped out. Jesus! U say that ur system works about 65% of the time. U do the maths. Chhers mate

[Mod's note: Caps text converted to normal text - don't SHOUT please!]

 

[hopefull]

Very eloquently put 'adrip' and thank you for sharing such insightful comments

I am happy to hear that you made £180 this morning.That would almost pay for a pair of my wife's new shoes..

Fortunately my 'edge' produced over £1150 by 11:00am after which I switched off for a while as I had other things to take care of.

Perhaps you would also like to share the details of your killer trading technique so that lesser mortals may learn from your skills.

Kindest Regards
H

PS. Watch those caps now buddy.

 

[adrip1]

Very eloquently put 'adrip' and thank you for sharing such insightful comments

I am happy to hear that you made £180 this morning.That would almost pay for a pair of my wife's new shoes..

Fortunately my 'edge' produced over £1150 by 11:00am after which I switched off for a while as I had other things to take care of.

Perhaps you would also like to share the details of your killer trading technique so that lesser mortals may learn from your skills.

Kindest Regards
H

PS. Watch those caps now buddy.

What caps? U gotta understand that u r talking to a moron here. Ur wife wears expensive shoes. Mine is lucky to get flip flops from the money i make trading. I wish i had the money to risk more though, seriously. I started with £500 of my wife's money and i am bringing it up steadily. I am happy u made all that dosh today. I am waiting for the day when i can win 1150 in one morning. What was that in pips? I will pass on ur invitation to share my method though apart from saying lagging ta with trailing stops. Risk 40 pips always. Never lose more than 40 pips. Talk to me, now closed both gbp and eur/usd. That was easy, wasn' it? Missed swissy though. I am getting bored playing chess. I don't understand ur system. Way to complicated for me. Mine is no brainer any simplton can follow, but i am not telling you. Trading is easy.

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My opinion are my own but u r wellcome to them

[Mod's note: Caps text converted to normal text - don't SHOUT please!]

 

[FetteredChinos]

good luck to you dripster. but in all honesty i do hope you can say the same in 6 more months.. and then 6 months more after that and so on..

 

[hopefull]

adrip

Fair play to you - I goaded you a bit on that last one !

We all have different methods / strategies.

Clearly your system is doing its job and I hope that continues for you...as I am sure you are aware once the pot starts building it is easier to ramp up and compound the profits.

I dont spreadbet but I guess the same MM applies, in that its a lot harder to get from £1 to £5 stakes than it is to get from £5 to £10 (all things being equal).

Respect
H

 

[adrip1]

Hopeful u r a sport. I am finding this business a bit lonely. But it is a massive buzz. I hope to be at the table year after year and if u want that u cannot bet too much in any single trade. I genuinly believe that trading is no harder than any other work. Why should people get away with the silly notion that it is one of the hardest things u can do? I worked as lawyer b4 i came to the uk and that was much much more demading intellectually than trading is. I don't think whether something is hard should be determned by the number of people who make it. There are lots of easy things people cannot do. I find it really annoying that we are being brainwashed into believing that trading needs exceptional skill. Just listen to the experts on bloomberg and they know nothing u and i don't know about forex. They all regurgitate the same stuff they hear from alan greespan,et al. These are the same people who tell us that trading is hard and it ain't, not any more than accounting or law and a lot of normal people do those things successfully. Yes a lot of people fail in trading but the majority of new businesses fail. Do u know that only about 2% of fat people manage to lose weigt and keep it away?

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My opinions are my own but u r welcome to them

[Mod's note: Please just type your posts normally - that means not ALL CAPS, and Not First Letter Of Every Word A Cap! Otherwise it make it difficult to read posts. Thanks you!]

 

[ERA]

Adrip1, you mentioned one of the enemies of good trading, loneliness. When you are in that state it is often hard to stay on top of your game day-in-day-out, you start making 'boredom trades' and other self distructive behavior creeps in. I agree with you trading is easy if it wasn't for those human vices that show up on your doorstep like fear,greed, carelessness, sense of invincibility when things go well all that kind of things. But thats what makes it so intriging, it's the ultimate test of self , experiencing the extremes of human nature

 

[adrip1]

Adrip - most of the people who are on bloomberg telly AREN'T traders. They're more often than not economists, and as such, are less exposed to the immediate consequences if they get things wrong (especially the ones who can hide behind vague T.A. waffle) I take your point but I still believe that it's a tough thing to do, by definition, as most people do fail. A relative definition of the concept of 'difficult to succeed at' is the only one thats really any use in these forums imho.

You're right in saying that non of the individual skills that are needed to be a successful trader are beyond most people with some level of intelligence, but it's combining all of them, consistently, day after day, regardless of what else is going on either on the screen or in your life that is simply beyond many people. Most people don't run into this problem bceause most jobs don't lend themselves to such instantanaeous and irrefutable performance measurement. Many people would hate the very thought of that. A once a year chat with their boss and half a page of A4 with some 'performance objectives' is usually plenty. Being made to look like an idiot for 5 or 10 days running and still bouncing back isn't easy. But trade for long enough and you'll have to face that. It's character building ;-)

I see ur point. What really is going on, then, is people's inability to deal with the emotional termoil that i admit comes with trading. Have u noticed that it is harder to handle winning than losing? I read about a research in which it was shown that if u have 100 people with a system that works 65% of the time only 5% succeed. That is amazing. Apparently, most people find it harder to take small losses and big profits rather than the other way round. What i find really surprising in this finding is that people failed to see that with that rate of winning trades, u can become a millioniare very quickly, but the decisions the people in the experiment made was not based on the facts in front of them. That is really interesting.

William Eckardt talks about people being given two choices. Taking a sure but small gain now or taking a chance so that they get more than what they were being offered. Apparently peole take the sure gain now even though they started out with nothing. On the other hand, when they were given the option of taking a sure small loss now or a bigger one later, they chose to wait and see if the losses would become smaller or disappear. If most people think like that, of course trading is hard for most people because the exact opposite of what they did is what u need to do to win in this game.

However, I find that people concentrate on trading technique too much at the expense of the emotional and MM aspect of trading. There mus be lots of systems that work out there. All one needs to do is find a simple system that suits their personality so that it is easy for them to follow it. It is in that sense that I think trading is easy. U see all u need is a system that works half the time and with a win/lose ratio of 2:1 u can make loads of money. Cheers.

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my opinions are my own but u r welcome to them