risk reward and targets

[Bill Carson]

I would like to have a risk/reward of 2:1 or better and that seems straight forward. However as soon as the trade starts to go into profit my risk/reward changes for the worse.

For example.
I have a trade with a 20 pip Stop and a 40 pip Target. Risk/reward is 2:1.

The trade goes well and goes to a 10 pip profit. I am now 30 pips from my target and 30 pips from my stop. I am now risking 30 pips to make 30 pips. Risk/reward 1:1

The trade continues to go well and I show a 35 pip profit. I'm now 55 pips from my stop and 5 pips from my target. Risk/reward is now 1:11. Terrible odds.

I don't like this scenario and am trying to work out a strategy. The options as I see it are:

A. Have a trailing stop. The problem there is if my initial stop is at a support level and I move the stop, especially in the early stages, I could get stopped out on an otherwise good trade.

B. Quit the trade if it gets to within a few pips of the target. This won't work because it would be the same as having a lower target in the first place.

What is the conventional wisdom on this one?

 

[Martinghoul]

It's obviously A. How can you say that you don't like trailing stops because you "might get stopped out on an otherwise good trade"? Haven't you been arguing in the first part of your post that the trade is no longer a good trade if it has moved, given the risk/reward? You can't have it both ways: either it's still a good trade, in which case you sit tight, or it's a not so good trade, in which case a trailing stop is the right thing to do.

 

[malaguti]

For example.
I have a trade with a 20 pip Stop and a 40 pip Target. Risk/reward is 2:1.

For starters, thats a 1:2 risk reward not 2:1..either way, good if you can get it

The trade goes well and goes to a 10 pip profit. I am now 30 pips from my target and 30 pips from my stop. I am now risking 30 pips to make 30 pips. Risk/reward 1:1

If you have entered the trade Bill, your risk reward has not changed. It is still 1:2 and will always be 1:2 until you exit your trade. The only time your risk changes, would be if you now entered another trade at that price. If you haven't, then stop thinking your risk is getting worse

The trade continues to go well and I show a 35 pip profit. I'm now 55 pips from my stop and 5 pips from my target. Risk/reward is now 1:11. Terrible odds.

you are now 5 from target, and your risk is exactly where it was..if you exit now, your risk reward on that trade is 1:1.9. Thats the scenario, not a risk of 11:1
If you are afraid of losing this, then trail your stop. the chances are, you will be stopped out as you probably haven't given it enough room and you wont hit that 1:1.9 let alone the 1:2
if there is nothing wrong with that trade, leave it the well alone

 

[Shakone]

I would like to have a risk/reward of 2:1 or better and that seems straight forward. However as soon as the trade starts to go into profit my risk/reward changes for the worse.

For example.
I have a trade with a 20 pip Stop and a 40 pip Target. Risk/reward is 2:1.

The trade goes well and goes to a 10 pip profit. I am now 30 pips from my target and 30 pips from my stop. I am now risking 30 pips to make 30 pips. Risk/reward 1:1

The trade continues to go well and I show a 35 pip profit. I'm now 55 pips from my stop and 5 pips from my target. Risk/reward is now 1:11. Terrible odds.

I don't like this scenario and am trying to work out a strategy. The options as I see it are:

A. Have a trailing stop. The problem there is if my initial stop is at a support level and I move the stop, especially in the early stages, I could get stopped out on an otherwise good trade.

B. Quit the trade if it gets to within a few pips of the target. This won't work because it would be the same as having a lower target in the first place.

What is the conventional wisdom on this one?

A)You can trail behind support levels or areas it shouldn't go if it is going to hit your target. You don't need to use a fixed length trailing stop which leaves the stop in the open.

B)You can take some of the position off at a certain level which makes up for the bad risk reward from that point on and leaves your stop where it was. E.g. in the example you gave, price moves 20 points in your favour, you take off a quarter. If it then goes on to hit your stop you have lost 10 points, if it goes on to hit your target, you have gained 35 points

C)You can learn to exit without using fixed stops and fixed targets so that you hold for as long as it's going good, and get out when it's not.

D) Some combination of the above.

 

[MainCycleV]

If you have entered the trade Bill, your risk reward has not changed. It is still 1:2 and will always be 1:2 until you exit your trade. The only time your risk changes, would be if you now entered another trade at that price. If you haven't, then stop thinking your risk is getting worse
==============================================================
I think the original post is correct. The risk reward ratio changes. This is the fact you have to face. At this specific point of time, you may lose more and win less, unless you think the profit which you have gained is not yours, still belongs to the market.
Obviously, 99% of trader will think the new market value is what they need to consider. For example, you put into $5000, you have a risk/reward of 1:2, after price goes up, you have $6000, if the traget and stop keep the same, the risk/reward will change definitely.
You cannot cheat yourself to believe it.

 

[barjon]

If you have entered the trade Bill, your risk reward has not changed. It is still 1:2 and will always be 1:2 until you exit your trade. The only time your risk changes, would be if you now entered another trade at that price. If you haven't, then stop thinking your risk is getting worse
==============================================================
I think the original post is correct. The risk reward ratio changes. This is the fact you have to face. At this specific point of time, you may lose more and win less, unless you think the profit which you have gained is not yours, still belongs to the market.
Obviously, 99% of trader will think the new market value is what they need to consider. For example, you put into $5000, you have a risk/reward of 1:2, after price goes up, you have $6000, if the traget and stop keep the same, the risk/reward will change definitely.
You cannot cheat yourself to believe it.

trade = 20 stop, 40 target = risk:reward 1:2

The trade moves against you to 5 away from your stop and you are now 55 away from your target. Are you suggesting that you are now in a super trade because you now have a risk:reward of 1:11.

 

[MainCycleV]

trade = 20 stop, 40 target = risk:reward 1:2

The trade moves against you to 5 away from your stop and you are now 55 away from your target. Are you suggesting that you are now in a super trade because you now have a risk:reward of 1:11.

In terms of risk/reward ratio, yeah, it is a super trade because of a risk/reward of 1:11. At this particular point, what you can gain is 55, and what you can possibly lose is only 5. This is based on that assumption the judgement (stop/target was set reasonably) is correct. What you think is that you begin to doubt your judgement when the market goes against you. When you still believe your judgement (stop/target reasoning), it is a superb chance to add to the position.
All this depends on your confidence about your judgement.

 

[barjon]

In terms of risk/reward ratio, yeah, it is a super trade because of a risk/reward of 1:11. At this particular point, what you can gain is 55, and what you can possibly lose is only 5. This is based on that assumption the judgement (stop/target was set reasonably) is correct. What you think is that you begin to doubt your judgement when the market goes against you. When you still believe your judgement (stop/target reasoning), it is a superb chance to add to the position.
All this depends on your confidence about your judgement.

Well, you original judgement was that price was going to go in your favour from where you entered and that you would be wrong in that judgement if price reached your stop. You're now suggesting that you are in a much better trade because you are nearly wrong.

 

[MainCycleV]

Well, you original judgement was that price was going to go in your favour from where you entered and that you would be wrong in that judgement if price reached your stop. You're now suggesting that you are in a much better trade because you are nearly wrong.

Your original judgement is that the price will go between the stop and the target, now the price is still in your range, why do you doubt about yourself?

 

[Joules MM1]

the only ratio of risk to reward that applies is to the original entry price and target ...that math does not change no matter how artistic the price is viewed once the trade is active....if you do not scale and dont alter the target then the actuality of entry price and target price are not changed and the R/R is not changed ...you can't win more or lose less unless you alter the target price or scale the trade....

or youre doing quantum trading where observing the trade alters the outcome

 

[MainCycleV]

the only ratio of risk to reward that applies is to the original entry price and target ...that math does not change no matter how artistic the price is viewed once the trade is active....if you do not scale and dont alter the target then the actuality of entry price and target price are not changed and the R/R is not changed ...you can't win more or lose less unless you alter the target price or scale the trade....

or youre doing quantum trading where observing the trade alters the outcome

You just gave your opinion, without any argument. It is not convicing. Did you read my justifications?

 

[Joules MM1]

the R/R has nothing to do with the trade profile itself, the R/R is only relevant to the entry and exit prices....
nothing to do with psychology or methodology of the trade, merely the numbers between entry and exit..

doubting your R/R is itself a psychology about your method....that's a different thing and doesnt affect the implicit numbers

if the argument is based on moving your stop ahead oif the entry to get perfect trade (where you can't lose more than the entry risk) then that's a new trade ratio ....it's a new trade profile

 

[avano]

I find it very hard to get a risk/reward ratio higher than 1.3

Do you guys have the same experience or I am not trying hard?

 

[Brazza]

I would like to have a risk/reward of 2:1 or better and that seems straight forward. However as soon as the trade starts to go into profit my risk/reward changes for the worse.

For example.
I have a trade with a 20 pip Stop and a 40 pip Target. Risk/reward is 2:1.

The trade goes well and goes to a 10 pip profit. I am now 30 pips from my target and 30 pips from my stop. I am now risking 30 pips to make 30 pips. Risk/reward 1:1

The trade continues to go well and I show a 35 pip profit. I'm now 55 pips from my stop and 5 pips from my target. Risk/reward is now 1:11. Terrible odds.

I don't like this scenario and am trying to work out a strategy. The options as I see it are:

A. Have a trailing stop. The problem there is if my initial stop is at a support level and I move the stop, especially in the early stages, I could get stopped out on an otherwise good trade.

B. Quit the trade if it gets to within a few pips of the target. This won't work because it would be the same as having a lower target in the first place.

What is the conventional wisdom on this one?

Good answers in this thread from everyone.

Conventional wisdom dictates that: Since amplitude changes constantly from bar to bar, and obviously faster in small time frames, then a perfect answer that fits every 1/2 r/r trade does not exist. It will come to you with experience.

 

[Babyblush]

If the risk : reward ratio is greater than 1:2 then the trader can be making good income on long run.

 

[rsh01]

are you making money? what is your % of winning trades? you have positive expectancy? can you improve that?
profit variance using a trailing stop vs fixed stop vs moving to b/e?

i know it can be hard to compare objectively, but keep journal notes on each trade & possible outcome using different stops, copy the live trade in demo acct & use diff stop methods.

as per what others mentioned your trade is only ever a 1:2 rr 'til you change smthg eg SL or TP. heard of evolving R before?

 

[Bill Carson]

If the risk : reward ratio is greater than 1:2 then the trader can be making good income on long run.

If the ratio is greater than 1:1 or 1:10 you can be making good money but not if your strike rate doesn't measure up.

 

[Bill Carson]

are you making money? what is your % of winning trades? you have positive expectancy? can you improve that?
profit variance using a trailing stop vs fixed stop vs moving to b/e?

i know it can be hard to compare objectively, but keep journal notes on each trade & possible outcome using different stops, copy the live trade in demo acct & use diff stop methods.

as per what others mentioned your trade is only ever a 1:2 rr 'til you change smthg eg SL or TP. heard of evolving R before?

Not making money since I'm not trading. I have no intention of placing trades until I've nutted out my strategy, back tested and forward tested.

Now, I haven't heard of the evolving R before. I've done a bit of poking around and will read up.

 

[Giovan]

Mostly 1:2, on lower TFs, higher TFs 1:5 then 1:7 on the long term