I've been reading the book by Kathy Lien and Boris Schlossberg called High Probability Trading Setups for the Currency Market. There is a section (on pages 15-16) explaining that what is mathematically optimal is psychologically impossible i.e. it is psycholigically impossible for a trader to be consistently succesful with a system that promises a high reward-to-risk (such as 2:1 or 3:1) from an optimised backtest.
The thing is you can follow some of the threads in the Trading Systems section to see that there are traders who have consistent success with higher risk to reward ratios. Is it possible that many of these systems are short-lived because the reward-to-risk is too high?
I think it's a difficult one because there are several variables, such as level of ability and experience, timeframe and frequency of trades, account and investment size, trading style (i.e. mechanical/program based versus discretionary) etc.
When we go about planning our money management and trading strategies, the reward-to-risk is obviously a crucial factor. Maybe we need to be more honest with ourselves and plan with a lower reward-to-risk ratio... It seems a difficult one because I imagine that for most people we can only learn what is bearable through experience. But then again, maybe it can be more simple than this...
I'm just like kick off a discussion about this. Hopefully some of the more experienced heads will be willing to share some pearls of wisdom...
The thing is you can follow some of the threads in the Trading Systems section to see that there are traders who have consistent success with higher risk to reward ratios. Is it possible that many of these systems are short-lived because the reward-to-risk is too high?
I think it's a difficult one because there are several variables, such as level of ability and experience, timeframe and frequency of trades, account and investment size, trading style (i.e. mechanical/program based versus discretionary) etc.
When we go about planning our money management and trading strategies, the reward-to-risk is obviously a crucial factor. Maybe we need to be more honest with ourselves and plan with a lower reward-to-risk ratio... It seems a difficult one because I imagine that for most people we can only learn what is bearable through experience. But then again, maybe it can be more simple than this...
I'm just like kick off a discussion about this. Hopefully some of the more experienced heads will be willing to share some pearls of wisdom...