trading with R:R < 1.0

[DashRiprock]

Well its not - Im sure theres a formula to work out what win rate needs to be based on a certain RR to gain positive expectancy; the lower the RR the higher the WR required; could be 70% plus....



So you're suggesting a strategy that most noobs start off with , the need to be right rather than maximising gains and cutting losses. isnt the whole point of learning to trade is learning to reverse this inbuilt human intuition..

Obviously there is a need to understand the timescales / lifecycle of the relevant move traded...

err... you mean you don't know it already? It's quite simple

Probability needed = (expectancy required + size of loss) / (size of win + size of loss)

the rest of your post is just flaming and will be ignored.

 

[arabianights]

behead those who insult islam

 

[Mao]

err... you mean you don't know it already? It's quite simple.

You obviously missed the sarcasm......

If you knew the formula then why did you say it was subjective ?

the rest of your post is just flaming and will be ignored.

Sounds to me like you dont have a valid response. Very petulant.

 

[traderman1]

If your trading for RR less than 1, then a positive expectancy is contingent on having a high win rate - the win rate required could be very high, depending on how much less than 1 the RR is.
If a very high win rate can be achieved fair enough, easier said than done though

A perfect answer. (I was also going to reply but your reply above said it all).

 

[traderman1]

Have you tried tick charts rather than time frame based charts, if your wanting sub +10 pips moves, with the right size tick chart and set up, on EU as I trade, I get 5-7 trades a day, with good consistency, R&R isn't a factor, % accuracy is

What is your accuracy (win rate) ?
With 5-7 trades a day, aiming for sub 10 pip moves and paying 2 pips spread on EU,, you must have a extraordinarily high win rate to be successful

 

[Shakone]

Why do you think that reducing the size of your wins, and keeping stops constant preserves your edge? I don't believe it does. There is a spread to pay. So if I have a small edge with stop 100 target 100, I would likely lose that edge if I had stop 100, target 1. There's no reason why it should be the same expectancy at all. So if it doesn't work when target is reduced to 1, then at some point between 100 and 1, my expectancy starts decreasing. At what point is that? The other thing to consider is that when you risk a fixed % on a trade, once you lose that % it takes more than that % to get back to breakeven. So if you're loss size is more than your profit size, then that exaggerates this even more.

I'm not against R:R<1, if you have an edge with it, then there's no problem. But I wouldn't suggest going too far below 1.

I understand your point about the psychological bias, but another way around it is to take some profit early. That reduces your risk on the whole trade, and still allows you have overall R:R higher than 1.

 

[trader_dante]

I totally agree with Bison (now there is a surprise )

There is so much talk about how you need a high R but as a value it's only really relevant when you combine it with your win rate.

 

[DashRiprock]

Why do you think that reducing the size of your wins, and keeping stops constant preserves your edge? I don't believe it does. There is a spread to pay. So if I have a small edge with stop 100 target 100, I would likely lose that edge if I had stop 100, target 1. There's no reason why it should be the same expectancy at all. So if it doesn't work when target is reduced to 1, then at some point between 100 and 1, my expectancy starts decreasing. At what point is that? The other thing to consider is that when you risk a fixed % on a trade, once you lose that % it takes more than that % to get back to breakeven. So if you're loss size is more than your profit size, then that exaggerates this even more.

I'm not against R:R<1, if you have an edge with it, then there's no problem. But I wouldn't suggest going too far below 1.

I understand your point about the psychological bias, but another way around it is to take some profit early. That reduces your risk on the whole trade, and still allows you have overall R:R higher than 1.

thats an interesting point Shakone, about and edge that works for 100:100 might not work for 1:100. But then again an edge that works for 1:100 might not work for 100:100! this goes back to the other thread at looking at the appropriate things for your expected trade horizon.

The bits about spreads... well yes, as the size of the risk/reward decreases, the size of the costs (spread and/or commissions) of doing the trade increase in proportion to the size of the wins or losses*. but i wasn't thinking about this in terms of playing for 5 pips on cable, more about markets where you can join the bid/offer that gives you a small advantage.

the the thing about % per trade... well sort of yes and sort of no. Maybe if you continually use the same % of account for stops and targets, but most people I know have a set margin per contract, so sometimes you will be trading more % and sometimes less. the trick is to make your margin for the contract big enough that you can go through biggest expected drawdown and not have to change deal size.

But like I said, these last two bits I am assuming have been taken into consideration already.


* but what about a trade with 1 risk to 100 reward? commissions will be the same

 

[Scotty2Cues]

So, say, comparing two strategies of the same expectancy, the one with r:r that it less than one isn't any better or worse than the one that the r:r is bigger than one.

Doesn't assuming this mean that it doesnt matter which strategy you use ?

 

[Scotty2Cues]

Doesn't assuming this mean that it doesnt matter which strategy you use ?

Which strategy do we think would give the most trades per year?

 

[kimo'sabby]

1pip take profit - no stop loss - max lev.

What are the chances of being taken out?

Market: 1 pip spread, 200 pip daily range.

 

[Scotty2Cues]

and doesnt assuming same expectations assume a bit too much about probabilities of winning with different r:r?

 

[Scotty2Cues]

1pip take profit - no stop loss - max lev.

What are the chances of being taken out?

Market: 1 pip spread, 200 pip daily range.

Wouldnt you need an infinite account size to cover the margin and if I had an infinite account size I would be doing something else...

 

[arabianights]

1pip take profit - no stop loss - max lev.

What are the chances of being taken out?

Market: 1 pip spread, 200 pip daily range.

"max lev" basically defines that for you, so it a bit of a dafty question

 

[marbig]

1pip take profit - no stop loss - max lev.

What are the chances of being taken out?

Market: 1 pip spread, 200 pip daily range.

Suicidal strategy. Only an imbecile would trade it.

 

[Splitlink]

exactly. few understand that which is why so many say you can't trade off small TF's. If you take countertrend trades off 1m or 5m charts then trying to get RR > 1 is ruin.

Peter

I have got to have a target against the trend. If I want to run it must be with the trend. I use averages for this. It doesn't matter what is used, get direction right. If you are not sure, use targets.