Why is Risk/Reward so important?

This topic is very important to me in determining what I can expect in my trading. Do I have ice in my veins when the trades aren't going my way?

Suppose your odds of winning were say, 30%. Your stoploss is 40, and your take profit is 200.

You take a few dozen trades, and find that you incured some large drawdowns when you lost 10 times in a row, but you had a few winners in a row that cancelled it out and made you positive. So..... your big winners make up for smaller losers. People risking 50 pips to gain 50 pips.... that is landmine field in my mind.

So now you realize that Fiji's %R is critical in determining how many losers you are willing to take in a row. This is what I call "how deep are you pockets?" Could you stand to watch your account fall 50% in a drawdown period? How about 90%?

As good as your system may backtest (discretionary or mechanical,) can you emotionally stand experiencing a large drawdown? The topic is popular for good reason, and anyone seriously considering trading real money should give it good thought.

If you have a system, and it has a 30% win rate, and a 5:1 Reward / Risk Ratio as you describe above, then the Kelly Formula gives an optimum Risk Factor of 16%. Then 100 trades will probably consist of 30 wins and 70 losses. The probable return on capital will be 228 times. There will be a calculatable probability of 2, 3, 4, 5, 6, 7, 8, 9, etc. consecutive losses. Ten consecutive losses will reduce capital to 17.5% of the original amount. There's a 1 in 35 chance of this occurring. Emotions have nothing to do with any of the probabilities. Emotions are irrational and cause people to do the wrong things. They shouldn't be introduced into the trading process in my opinion.