Risk / Reward

[advfn2828]

I say most blow up even with 2%.

This is probably true simply because of the lack of any meaningful strategy and lack of discipline.

But certainly restricting risk to 2%, or even 1% (of current balance is best in my view) loads the dice in your favour, if 1% restricts your trading in some markets, maybe Forex can help, or if in the UK spreadbetting with the likes of IG index at 10p per point?

Having said that, any new trader that does not take the time to understand what he/she is trying to trade would be better off not taking any risk and investing time in education.

(Just my view) But I do speak from experience of near as damn it blowing my first efforts at trading - down 80% in 6 months, and recovered to -20% in this last two months. Now trading Forex live after taking several months out to learn, practice and now execute!

Graeme

 

[mrsoul]

Ello Peto,

Most newbies will think that a win rate of +33% will be a walk in the park.

However, If your risking 50 pips for a 100 pip reward the odds of you hitting your target are 2.1 against you. Expect to be wrong twice and correct once out of 3 attempts. As Peto correctly pointed out you would need to be correct +33% of the time with your RvR odds (probably even more than +33% )

Magican up positive risk v reward ratios all sounds lovely and cosy before you get into a trade.

Much more to trading than RvR sorry Van Tharp



Andy

You are the man captain currency.
This was one of the most intelligent posts I have ever read on t2w!
Your response shows that you really understand trading.
I agree 1000%.
Many traders have been sold this bill of goods into believing that if they have a favorable r/r that they, then, will be able to make money.
Favorable r/r means diddley squat!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
It ain't the key!!

 

[Technically Fundamental]

The only thing I think R:R is useful for is for weighing up against probability of the trade working out after everything has been planned to see whether its worth entering.

 

[Sang Froid]

Ok, so this is something I've been struggling to comprehend recently.

I always used to use a fixed RR ratio, 1:2 which equated to S/L of 20 and T/P of 40. Like I say this was fixed for every trade regardless.

I've recently been experimenting with a new strategy that doesn't really merit having a fixed RR ratio. Without going into too much detail it's based on S/R. My problem being that from where I've entered the market if the price then takes out S or R 1 which could be as much as 80 pips away for instance should that be where my target is and then adjust my S/L accordingly..... or should I just be happy with my 40 pips safe in the knowldege that for EVERY trade I know how much I'm risking and how much I'm making?

My problem comes in that if my T/P and S/L are constantly changing per trade does this not negate any RR? I realise you can change lot size so you only risk a certain % of your account but why?

If I can make x amount of money with a fixed T/P at 40 pips on a consistent basis, why would I want to reduce my lot size so I can place a T/P twice the distance and risk not having it hit?

Does this make any sense? Sorry if this sounds like the ramblings of a mad man but I've thinking about this so much the last few days, so much so I dreamt about trading last night.

 

[LiamH]

Ok, so this is something I've been struggling to comprehend recently.

I always used to use a fixed RR ratio, 1:2 which equated to S/L of 20 and T/P of 40. Like I say this was fixed for every trade regardless.

I've recently been experimenting with a new strategy that doesn't really merit having a fixed RR ratio. Without going into too much detail it's based on S/R. My problem being that from where I've entered the market if the price then takes out S or R 1 which could be as much as 80 pips away for instance should that be where my target is and then adjust my S/L accordingly..... or should I just be happy with my 40 pips safe in the knowldege that for EVERY trade I know how much I'm risking and how much I'm making?

My problem comes in that if my T/P and S/L are constantly changing per trade does this not negate any RR? I realise you can change lot size so you only risk a certain % of your account but why?

If I can make x amount of money with a fixed T/P at 40 pips on a consistent basis, why would I want to reduce my lot size so I can place a T/P twice the distance and risk not having it hit?

Does this make any sense? Sorry if this sounds like the ramblings of a mad man but I've thinking about this so much the last few days, so much so I dreamt about trading last night.

RR on it's own is pretty useless unless you're talking about something that is guaranteed a particular success rate over time.

The way I see it, your entry, stop and tp should all be at logical prices based on the market behaviour at the time - Your true RR and win rate would become clear only after a couple of thousand trades.

 

[Sang Froid]

Ok, well that makes sense I guess. I had contemplated placing my take profit levels at logical points in the market and then adjusting my stop based on this... as in how much do I want to risk losing on this trade (maximum of x% of my account) if I have the possiblility of making x amount. The only problem I had with it is that every trade would have different RR ratios and my brain could not cope with it.

 

[meanreversion]

Why limit your winning trades, why not run them until such time as the market tells you to get out?