what r/r and strikerate works best??

[jayjay121]

hi

would be interested in experienced traders opinions for their overall strikerate record and risk/reward ratios..........Im doing some research in finding out what r/r and strike rate works best and what succesful traders are working to in their system..........

My own system goes for very high probability set ups but needs a strike rate of 80% to be profitable as my r/r is usually 1/2, ie my stop in my scalping system is usually 4 ticks while i set a profit target of 2 ticks..........Does anyone esle trade a system and achieve 80% consistently being ultra disciplned and sticking to the plan of their system?

Is a 80% strike rate possible over the long run?.......I guess alot of you will say not, but to me i have tried systems with 3/1 or 2/1 ratios and to be honest they too get stopped out or do not reach their targets and we end up with the same net situation overall.


regards,


jason

 

[BSD]

No one right answer to that, depends totally on you, your objectives, and psychological make-up.

I know some people who trade like you, and they have had strike rates of 70, 80% consistently for years with scalping.

Problem is while they make good money they will never get filthy rich, as such a scalping strategy is not compoundable for eventual market liquidity issues.

The richest traders I know have hit rates of around 50 percent or some even way below that, but with pretty good risk / reward ratios, and they keep compounding for all it's worth.

 

[One Eyed Shark]

I change my r:r as the day goes on, I work with pretty tight ratio to start and once I have my ticks in the bag I then push it out, feels more comfortable that way and do not worry about getting stopped +1, stop is never more than 5 ticks on anything.

70-80% consistantly is perfectly doable, compound the contracts not the target though as BSD said in some markets there are limits to the size you can trade, though trading the major markets should not be an issue until you are earning megabucks, sat trading bobl at the mo and watching orders go through at 2000 lots with no slippage so 10 - 20 - 30 are no problem.

10 ticks on 10 lots consistantly per day is 2500 Euro pw , not shabby in anybodys book

 

[Paul71]

hi

would be interested in experienced traders opinions for their overall strikerate record and risk/reward ratios..........Im doing some research in finding out what r/r and strike rate works best and what succesful traders are working to in their system..........

My own system goes for very high probability set ups but needs a strike rate of 80% to be profitable as my r/r is usually 1/2, ie my stop in my scalping system is usually 4 ticks while i set a profit target of 2 ticks..........Does anyone esle trade a system and achieve 80% consistently being ultra disciplned and sticking to the plan of their system?

Is a 80% strike rate possible over the long run?.......I guess alot of you will say not, but to me i have tried systems with 3/1 or 2/1 ratios and to be honest they too get stopped out or do not reach their targets and we end up with the same net situation overall.


regards,


jason

As BSD, has mentioned, no one answer. All you can do is get in and manage the trade accordingly. Having preconcieved ratios that fit the bill for every trade are not always going to come to fruition.

 

[BSD]

PS, two posts I made on two other threads about the same sort of issue:

I think one source of disagreement probably stems from different objectives:

If you want to generate a steady income then a scalping or very short term style is definitely very achievable where you have pretty high winning percentages.

That what those who talk about passion in trading are probably on about, a desire to feel knowledgable or confident through having lots more winners than losers.

On the other hand you have those whose main objective is not a regular income from markets, but instead maximisng ones net asset value to the hilt, ie people who are really shooting for starting with very little and making a hundred million or more.

There are of course traders with proven track records who have high hit rates of say 70, 80%.

But all the evidence is equally clear that if you want not a stead yincome but to generate tremdnous wealth it is no longer about hit rate, it is then about risk / reward ratios.

Brett Steenbarger:

"...As a rule, maximizing batting average/minimizing drawdown comes at the cost of lowering overall system profitability...."

"William Eckhardt:

The Win/Loss Ratio
“One common adage on this subject that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of a gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance. …

What really matters is the long-run distributions of outcomes from your trading techniques, systems, and procedures. But, psychologically, what seems of paramount importance is whether the positions that you have right now are going to work. Current positions seem to be crucial beyond any statistical justification. It’s quite tempting to bend your rules to make your current trades work, assuming that the favorability of your long-term statistics will take care of future profitability. Two of the cardinal sins of trading - giving losses too much rope and taking profits prematurely - are both attempts to make current positions more likely to succeed, to the severe detriment of long-term performance.”
Market Wizards

Fellow Market Wizard Bill Lipshutz who now runs a hedge fund and was before that his banks single most profitable FX trader with a hit rate of 20, 30%.

Kenneth Grant, in "Trading Risk: Enhanced Profitability through Risk Control", depicts his experience as risk manager for some of the best and most successful hedge funds, amongst others Paul Tudor Jones funds and Steve Cohens SAC Capital, that:

Across all market conditions, traders, trading styles and time frames, one rule holds true:

10% of all trades inevitably account for 90% of profits !


If you could combine large sums of money with high hit rate AND good risk / reward ratios there would be evidence of that out there, but the evidence tells a different story:

It's either lots more winners than losers through scalping and generating good money but never joining the top dogs, OR it's forget about hit rate and shoot for the stars.

and

100%, hand on heart, all that "tape reading" ever did for me was get me out of a winning position too early. Here at my prop firm when they saw how I trade they actually advised me not to use TT, to ignore the order flow and simply phone my orders in when I identified the setups. And for a firm ( and a business model) made up of traders that use "tape reading" to scalp for a few ticks at as much size as they can do in the market liquidity, I took that as a sign of confidence in me and the way of trading I have outlined in other theads.

Things haven't changed much in a hundred years have they:

"After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine – that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.”

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end.

Wait until you see -- or if you prefer, until you think you see the turn of the market; the beginning of a reversal of general conditions.

That is about all I have learned to study general conditions, to take a position and stick to it. I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary.

One of the most helpful things that anybody can learn is to give up trying to catch the last eighth or the first. These two are the most expensive eighths in the world.

Everybody knew that the way to exploit a market conservatively was to take profits and buy back your stocks on reactions. And that is precisely what I falsely did in my early years, or rather what I tried to do; for I often took profits and waited for a reaction that never came.

They say you never grow poor taking profits. No, you don't. But neither do you grow rich taking a four-point profit in a bull market. You might lose your position and with it the certainty of a big killing. It is the big swing that makes the big money for you."

Jesse Livermore, who started out penniless, and became what would in todays money have been a Billionaire through trading almost a hundred years ago.

"Trading is not about how often you are right. Trading is about how much money you make when you do have a winning position."

George Soros, MultiBillionaire in todays money as well, lol.

Conversely, Market Wizard Marty Schwartz, who wrote the excellent Pit Bull, had what far too many cherish, the 70, 80% hit rate, and a NON-compounding return on his assets of 30% / month, but to keep that working he had to regularly clear out his account for market liquidity issues. Later when he tried to join the top dogs, first through Commodities Corp that was later bought out by Goldmans Sachs and supplied him with what for his style was too much money to make his method work, and later when he attempted to start his own hedge fund, both times he failed to get his scalping / very short term / high hit rate methods to work with large sums.

It's either scalp your way to a very good livelihood with a high hit rate, or go join the top dogs and forget about hit rate, maximising your risk / reward ratios instead.

If you could combine high hit rate with excellent risk / reward ratios you would be the richest person on this planet and most other galaxies out there in no time at all.

After I wrote this I was PM'ed by another member here who is at a hedge fund, they there have a hit rate of ca 30%.

So, pick your choice between what you want from life, and then do it, and feel good about it.

Isn't that really what life is about, doing what YOU want to do, not living life according to what you think others see as worthy or successful etc.

It is ONLY about YOU.

 

[BSD]

I'm sure most people here know this ?

Random Equity Curve Simulator of a trading system. Learn it before you trade

 

[tomorton]

I understand fund managers aim at a 33% success rate, but they are quite good at running winners and cutting losers. And this brings in the old money management chestnut - its no use having a 95% win rate and a 10:1 r/r if you let one of the 5% of losers run beyond acceptable risk and it wipes you out.

 

[jayjay121]

interesting views...

so for hedge fund managers to make a profit they more or less have a strike rate of 3 winners and 7 lossers out of 10, if we work that to a 5 tick stop just say, then each of the winners would need to be around 15 ticks to be worthwhile.....ie 3x 15ticks = 45 ticks against 7 losers @ 7x5 ticks = 35 ticks so net profit of 10 ticks every 10 trades.......

hmm being a scalper i would find that very hard to stick too purely as i would be nervous letting my trades run like this without taking profits, but i can see the benifits for sure as youare looking for the big trades and takes a bit of pressure off having to be correct 80% of the time like i currently have to be with my own system.

maybe i can juggle the r/r around abit to suit better, thanks guys

i realise r/r will always be different depending on the actual trade but when starting out and planning your system it is nice to have some estimations to what you can expect

 

[new_trader]

My 2 cents

It’s difficult to say whether I found short term trading or whether it found me but I feel suited to this profession. I actually enjoy trading, I enjoy watching the market and observing the players and trying to figure out on whose side I should be on. Do you see? I like it. The market to me is a story told not in words, but in numbers, and I look forward to the story each and every day that I able to trade. I don't have any lofty ambitions of wealth. I have no ambition to run my own hedge fund or write a trading book. I don’t have any ambition to be as rich as Bill Gates, Warren Buffett or that smart aleck who invented You Tube.

Now, I have a great deal of respect for those who derive their entire income from trading, but let’s be realistic, most, if not all successful traders would have had to subsidise their trading accounts in the early days. I have blown my trading account a number of times and without my full time job I don’t know how I would have got back on my feet again, not counting begging, borrowing or stealing. Short term trading has been an expensive and steep learning curve for me and in the process I have had to pay my mortgage, pay my bills and put food in my mouth. But now, having a much larger disposable income from my full time job I can finally afford to add more to my trading capital each month and enjoy a comfortable existence as well. My goal has always been to be proficient enough to be able to do this as a full time profession and I am definitely on my way but I lack the capital.

So what is enough capital you may ask? Well let me use a conservative, but very realistic hypothetical example based around my trading performance.
1) A win rate of 75%
2) An average net profit/trade of 1 tick (after all expenses)
3) An average of 15 trades/month
In other words, I am averaging a net income of $US100.50 per contract/month. That may seem puny and insignificant, but let me state for the record that I work full time and there are a number of days in a month that I cannot trade and I am limiting myself to around 1 trade/day until I have built up more capital. This isn’t a limitation of my ‘system’ or methodology, it is a self imposed limit and a limit due to circumstances.
Using these figures I would need to trade around 40 contracts to earn the same amount as I do in my full time job. Would I have any problems with liquidity trading this size? Absolutely not! The ES would absorb 40 contracts like it was 4. Now, what if I want to double my income? Would the ES have trouble absorbing 80 contracts? Again, absolutely not! Now, I want to double my income again (in other words make 4X what I was earning working full time), would the ES have trouble absorbing 160 contracts? Absolutely not! What about 320 contracts? Absolutely not! Now I am making 8X what I was working full time and I am nowhere near having any liquidity issues! This means a net profit of $US32, 000/month (not counting taxes) based on the conservative results mentioned above. Who on earth would bemoan this sort of an income!?

I cannot tell you how you should trade, in fact nobody can. It is a very personal matter which resolves itself naturally. If you cannot make a regular income from rapid in/out trading then it doesn’t mean it is wrong, or it is impossible. Who can assume the role of oracle and tell you what is right for you? If your trading methodology is grounded in a thorough understanding of the market then how you extract money from it is totally and completely up to you. I must say though, if you have been trying for 9 years and are still asking questions like “What is the best r/r ratio” then to be honest, you really have been doing something fundamentally wrong for the last 9 years.

Good Trading to you :clover:

 

[BSD]

NT, have you thought of doing what Trader Dante did who was in a similar situation, and then established a good track record and joined a prop firm that backs its traders with capital ?

 

[new_trader]

NT, have you thought of doing what Trader Dante did who was in a similar situation, and then established a good track record and joined a prop firm that backs its traders with capital ?

I have thought about it but I think I'm too old. I expect they want people under 30.

 

[BSD]

That would really be sad and pretty self-defeating, who cares how old someone is if they can print money...

I'd also say that older candidates are better under pressure than some impressionable 20 sthg old straight out of Uni with no comparable experience of coping when times get rough.

 

[0007]

That would really be sad and pretty self-defeating, who cares how old someone is if they can print money...

I'd also say that older candidates are better under pressure than some impressionable 20 sthg old straight out of Uni with no comparable experience of coping when times get rough.

Agree. That's why they didn't put spotty-faced youths on the space missions.

 

[Paul71]

I have thought about it but I think I'm too old. I expect they want people under 30.

I know for a fact that there are people working/trading for TCA who are over 30 years of age, you could give them a try?

Just a thought, NT. (although you've probably thought of that idea already)

 

[new_trader]

Thanks for the encouraging words. To be honest I have thought long and hard about trading for a firm and whilst that would allow me to trade full time, in the end I would still be ‘working’ for someone else. I continue to mull over the next step in my trading career...!

 

[BSD]

Can't let ageism get away with a poor attempt at trying to rule the rooster can we.

Gotta nip that in the bud straight away.

Next thing we know they'll try and ban anyone over 25 from going to clubs lol.

Hey guys, have we got news for you, Not in my life time, most definitely not !

 

[jayjay121]

i have always been taught to stay away from averaging down and have never actually tried it or though been very very tempted on occasions probably like most traders.

Anyway i have a system that has backtested over a good period of time that has an avergage of 6.5/10 strikerate. As you know im trying ways to improve system as im only breaking even with it...Im quite proud of my workings and system as i have worked hard to produce it and or though its not profitable i have achieved more than what most traders have by breaking even as you know most traders lose in the long run.

Anyway i was thinking what if i did introduce averaging down into my strategy? as it is very unlikely i will have 10 consec losses or more and can set my postion sizing accordingly. My daily target is only 1 point which im very likely to get by averaging down. This is of course very dangerous as TA is so random and 10 or more consec then i blow out my acount, but highly unlikely also.

Anyone using anything like this in their strategy?, probably not but worth asking

 

[Joey25]

i have always been taught to stay away from averaging down and have never actually tried it or though been very very tempted on occasions probably like most traders.

Anyway i have a system that has backtested over a good period of time that has an avergage of 6.5/10 strikerate. As you know im trying ways to improve system as im only breaking even with it...Im quite proud of my workings and system as i have worked hard to produce it and or though its not profitable i have achieved more than what most traders have by breaking even as you know most traders lose in the long run.

Anyway i was thinking what if i did introduce averaging down into my strategy? as it is very unlikely i will have 10 consec losses or more and can set my postion sizing accordingly. My daily target is only 1 point which im very likely to get by averaging down. This is of course very dangerous as TA is so random and 10 or more consec then i blow out my acount, but highly unlikely also.

Anyone using anything like this in their strategy?, probably not but worth asking

Jay,

Yes, I average-in my hedge for options trading. I've found that the net result is a Sharp ratio twice that of doing it in discrete lumps.

You can also use it to trade support and resistance as zones rather than single point estimates.

Joey

 

[fifty2aces]

Averaging down gets a bad reputation mainly because it is abused by many people who see a position going against them, and lacking a plan, decide to double up. If scaling into a position is part of your original plan, and it fits your risk management strategy, it's not necessarily such a bad thing. For some people it's necessary - if you want to build a large position in an illiquid market, you don't just hit "buy market", you come up with an acceptable range of prices to try and work the order.

 

[jayjay121]

so its ok for scaling into a postion, great, but what if you get stopped out then double the next postion to make it up, say you kept on doing this as part of your plan until you finally had your point profit for the day then quit for the day.?.............is this strategy viable if back testing proves very unlikely that you will get too many consec losses to affect system, nothing is guaranteed i know but what are your thoughts?..........thanks for the replies