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What Is a 3:1 Reward to Risk Ratio?

  • #41
  • Edited 11:01pm Sep 13, 2020 10:06pm | Edited 11:01pm
Quoting BWilliam
{quote} The MM ties in closely with the RR strategy. Say for example the trader starts with a $100 account. He risk 5% a trade which is translated to the lotsize based on the stop he uses and the pair he trades which have different pip value. The common factor is the stop and $value risked a trade. All these numbers are fixed and predetermined. Another model is step like where adjustments are made when the account balance hits a certain high point, eg. 100% return, or low point, eg. 50% accumulated loss. The result is every trade has different calculated...
Thanks BWilliam for the explanation.

I have come to the conclusion that this method of trading just isn't for me and I guess it never was otherwise I would have been doing at least some of it.
Maybe will be doing this in another life. ..

On the second thought, I might want to broaden my tp targets a little...you know, slow things down and expand the horizons.
So, learnt something. Thank you.
  • #42
  • Edited 2:38am Sep 15, 2020 2:24am | Edited 2:38am
Quoting Arty76
{quote} Ok understood. A little more than gambling. Nothing more.
If you chose to play by fixed r:r, you must stick to the rule. Tp 30 pips- sl 10 pips. Price can go til -9 then go and touch your tp, it could also go til +29 then go and touch your sl. Some charts( like rneko and point and figure) already include r:r so its easier to watch this on them. If you dont have an edge of course you re gambling and no r:r will help you from randomness
  • #43
  • Sep 15, 2020 10:19am Sep 15, 2020 10:19am
Quoting metta87
{quote} If you chose to play by fixed r:r, you must stick to the rule. Tp 30 pips- sl 10 pips. Price can go til -9 then go and touch your tp, it could also go til +29 then go and touch your sl. Some charts( like rneko and point and figure) already include r:r so its easier to watch this on them. If you dont have an edge of course you re gambling and no r:r will help you from randomness
Sure, I know what you mean. But for me a stop loss is an emergency stop.
3:1 for me is gambling, there is no mathematical reason to say 3:1 or 10:1 or 1:4! Lottery!

The point (price) were I exit in loss is different every time. Stop loss for me (and it’s just my opinion and my way) is not the price that tells me that I was wrong! For me that price is “ ok, I was wrong”.
The stop loss is for emergency!
The past is already gone, the future hasn't arrived yet
  • #44
  • Sep 15, 2020 10:29am Sep 15, 2020 10:29am
Quoting OutThere
{quote} Yet a few traders are doing it apparently successfully according to some of the comments in this thread.
A lot of persons ( billions of persons) trade better then me. This is about strategy, psicology, time spent in forex, Qi .....,,
But if you select a 3:1 RRR you are deciding that, for exemple, your lost must be 10 pips for max and that you don’t want a gain if it’s not bigger that 29 pips.
This is your choice. But this includes that gain 30 pips is a lot more difficult than lose 10 pips. A lot of people forget this!!!
The past is already gone, the future hasn't arrived yet
  • #45
  • Sep 15, 2020 11:49am Sep 15, 2020 11:49am
GBPUSD chart - I have attached a chart with pivots points on it. As you can see from the chart you can see were the targets for taking profits are.
I wouldn't enter a trade because of pivot lines, but exiting a trade makes more sense. I think retail traders are much more likely to take there profits too early.
whilst profitable traders will look to exit there traders around pivot points. Markets have some randomness- drift in them but I do think they have profit target which can be worked out in advance.
Attached Image (click to enlarge)
Click to Enlarge Name: GBPUSD 1400 ticks.png PIVOTS.png Size: 184 KB
  • #46
  • Sep 15, 2020 12:25pm Sep 15, 2020 12:25pm
Funny thing is that no one has chimed in with their 3:1 or 2:1 or any proportions record or TE to show they do it and it works. I'm not saying that it doesn't work unless I see proof but you know, a little something to keep us interested in the method would be nice especially from a proud method trader who follows those rules.

My guess is that even though the rule's basics are crystal clear (ie: you hodl on till tp or sl), hardly anyone in reality abides by that rule 100% of the time. Even if someone claims they are doing it, you'll notice a lot of anomalies in their track record whether it's bailing out before the target is reached or moving sl etc. If someone was to show some records as such, they'd be firstly chastised by the true method traders and secondly by those who find it funny that a trader can call a specific target and hodl on for life life.

Still welcoming some successful examples.
  • #47
  • Sep 15, 2020 2:11pm Sep 15, 2020 2:11pm
Alright, here you go:

The Complete Guide to Risk Reward Ratio
https://www.tradingwithrayner.com/risk-reward-ratio/
  • #48
  • Sep 15, 2020 3:16pm Sep 15, 2020 3:16pm
Thinking in term of ratio is flawed. The market is dynamic. The market continues to change after one enters a trade, even on intraday this is very important. That is why strategies that are profitable on the long term are never fixed, in any way. Never fixed in amount of pips as takeprofit or stoploss, never fixed by ratio, etc. A focus on indicator based stops first is a better solution.

any complete backtest and forward testing of at least 10 years proves this over and over again. Optimize with anything fixed, its a loss.

For example, a strategy s takeprofit based on a given MA double breakout will give you the profit the market has to give you at that time. One signal can bring in 1x, 2x... or even 20x the SL. Same principle with SL.

the second one expects anything from the market, he is lost.

We can only react to the price, and adapt
If I don't mention SL and/or TP = longer-term setup possibly in the works!
  • #49
  • Sep 15, 2020 3:55pm Sep 15, 2020 3:55pm
The 3:1 ratio always reminded me of Fibonacci, so I googled 3:1 RRR and fibonacci and this link came up:

How To Hack Metatrader To Create The Ultimate Risk:Reward Ratio Tool https://www.tradeciety.com/metatrade...rd-ratio-tool/

If anyone uses Fibo lvels for entry/exit, it totally makes sense to use this hack of Fibo and make it work especially if fibo is set at major s/r areas.
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  • #50
  • Sep 21, 2020 6:50am Sep 21, 2020 6:50am
Quoting tzamo
{quote} Final points: Have a look at what might be a typical % success rate (% win). For 1:1 RRR, there may be some 65% win-rate systems, 2:1 RRR; now looking at 45%-55% win rate. Take it to 3:1 RRR, typical win rate may be around ~35%. These are average expected values of profitable strategies, based on my understanding and may be different. Anyways, I see the average as just over break even (+ some wiggle room) needed for the strategy to be profitable long term. See this image for the required % win rate B/E point of the system: {image}
I think most traders here don't understand the concept of this image. It's not saying the R:R determines the win %, what it means is that in order to be at break-even using a 1:3 R:R you only need to be right 25% of the time. And by "break-even" it means your account balance not when you move your stop to break-even. So in basic terms if you have a R:R of 1:3 you can be wrong 75 times out of a 100 trades and your balance would be the same as when you started. If you improved to 30 wins & 70 losses out of a 100 trades you would be in profit on your overall balance. The advantage of having a high R:R means you can have a low win rate & still be profitable.

BTW I never use the term 1:3, I usually say it the other way round as in 3:1 which to me means risking 1 to make 3, I only used it to stay in line with the image.
Everything you want in life is on the other side of fear.
  • #51
  • Sep 25, 2020 4:29am Sep 25, 2020 4:29am
it means your reward is 3pips for every 1pip risk. If you place a trade with 3:1 RR ratio, you can get 3pips if your trade goes your way and you loose 1pip if your trade goes wrong. This ration has to be greater than 1 to make your trading profitable. This has to decided while placing your trade and knowing your Risk per trade for a day and for a month.
  • #52
  • Edited 7:13am Sep 25, 2020 6:41am | Edited 7:13am
Quoting perryjohn765
it means your reward is 3pips for every 1pip risk. If you place a trade with 3:1 RR ratio, you can get 3pips if your trade goes your way and you loose 1pip if your trade goes wrong. This ration has to be greater than 1 to make your trading profitable. This has to decided while placing your trade and knowing your Risk per trade for a day and for a month.
I continue to don’t understand why.
if you choice ,like in your exemple, that your rrr is 3:1 it means that you simply choice that you don’t want to lose more that 1 pip, and you don’t want to gain less than 3 pips.
Nothing more, nothing less.
That is the biggest mistake in the retail trading strategies!

In your exemple you say that your rrr has to be greater than 1 to make your trades profitable. So, if my rrr is 0,5:1 are my trades in loss? And what if using a 0,5:1 rrr I’m right 10 times and I’m wrong 1 time? Am I in loss?
The past is already gone, the future hasn't arrived yet
  • #53
  • Sep 25, 2020 10:48am Sep 25, 2020 10:48am
Quoting Arty76
{quote} I continue to don’t understand why. if you choice ,like in your exemple, that your rrr is 3:1 it means that you simply choice that you don’t want to lose more that 1 pip, and you don’t want to gain less than 3 pips. Nothing more, nothing less. That is the biggest mistake in the retail trading strategies! In your exemple you say that your rrr has to be greater than 1 to make your trades profitable. So, if my rrr is 0,5:1 are my trades in loss? And what if using a 0,5:1 rrr I’m right 10 times and I’m wrong 1 time? Am I in loss?
If you have a high win rate then I wouldn't worry, for me personally my high R:R does wonders.
Everything you want in life is on the other side of fear.
  • #54
  • Sep 25, 2020 11:17am Sep 25, 2020 11:17am
Quoting MoneyMeyka
{quote} If you have a high win rate then I wouldn't worry, for me personally my high R:R does wonders.
I’m not saying that I have a monster win rate.
I’m only saying that, in my opinion that could be wrong, the concept of RRR is wrong its own, because when you choice for example 30 pip of gain your are only limiting your options.

1) The market could give you today 25 pips one time and 21 another time, but instead of gaining 46 pips you’re losing 20 pips.

2) Your choice of having a RRR impacts your trade’s win rate! Your entry could be right 95% of time, but when you choice a fixed RRR you’re changing the starting conditions and your win rate will be different.
The past is already gone, the future hasn't arrived yet
  • #55
  • Sep 25, 2020 11:54am Sep 25, 2020 11:54am
Quoting Arty76
{quote} I’m not saying that I have a monster win rate. I’m only saying that, in my opinion that could be wrong, the concept of RRR is wrong its own, because when you choice for example 30 pip of gain your are only limiting your options. 1) The market could give you today 25 pips one time and 21 another time, but instead of gaining 46 pips you’re losing 20 pips. 2) Your choice of having a RRR impacts your trade’s win rate! Your entry could be right 95% of time, but when you choice a fixed RRR you’re changing the starting conditions and your win rate...
Having a high R:R puts me at ease when I trade because I can take trade after trade & not worry about the next trade being right which allows the probabilities to play out without any interference. I can have six losing trades in a row & still be able to take the next trade because I know it takes 1 or 2 trades to cover those losses. I understand that you're never guaranteed anything in the markets that's why I don't have a fixed R:R. I have a minimum 3:1 R:R which is sort of built into my trading style, I prefer letting my winners run & I don't mind being taken out at breakeven. Sometimes I will walk away with 1 or 2R because price pulled back to my profit stop. It's all really part of how you trade & your trade management.
Everything you want in life is on the other side of fear.
  • #56
  • Sep 25, 2020 12:14pm Sep 25, 2020 12:14pm
Quoting MoneyMeyka
{quote} Having a high R:R puts me at ease when I trade because I can take trade after trade & not worry about the next trade being right which allows the probabilities to play out without any interference. I can have six losing trades in a row & still be able to take the next trade because I know it takes 1 or 2 trades to cover those losses. I understand that you're never guaranteed anything in the markets that's why I don't have a fixed R:R. I have a minimum 3:1 R:R which is sort of built into my trading style, I prefer letting my winners run &...
If for you it works you’re right doing it
we just have different opinions and visions about the market
The past is already gone, the future hasn't arrived yet
  • #57
  • Edited 10:40am Sep 26, 2020 10:28am | Edited 10:40am
I will share my experience of Live Trading for the last 5 years.

1. My R:R is 1:6. I have my Entry with Statistical Edge. I place my 2% Stop Loss with Statistical Edge. I trade hourly bars, at most 2 trades a day. From this moment on it is up to the Gods or Luck or whatever you want to call it. Market will do what Market will do.

I do get my R:R Homeruns 6 times a year on average. That is 72% of Profit. Rest of the time, I am happy to be at BE or at +- 2,3 % a month.

2. I also scalp 4, 5 trades a day on 5 min chart with my other technique. The only trailing that works is, to trail the market on lower time frame under the pullbacks, as an example for a Friday Buy Trade on 5 min but trailing on 1 min chart below.
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  • #58
  • Nov 6, 2020 2:55am Nov 6, 2020 2:55am
Quoting driven18
I will share my experience of Live Trading for the last 5 years. 1. My R:R is 1:6. I have my Entry with Statistical Edge. I place my 2% Stop Loss with Statistical Edge. I trade hourly bars, at most 2 trades a day. From this moment on it is up to the Gods or Luck or whatever you want to call it. Market will do what Market will do. I do get my R:R Homeruns 6 times a year on average. That is 72% of Profit. Rest of the time, I am happy to be at BE or at +- 2,3 % a month. 2. I also scalp 4, 5 trades a day on 5 min chart with my other technique. The only...
Can't emphasize the significance of high R:R enough.. Great risk strategy.

OutThere, i think you're a strongly opinionated person but check this video out with an open mind, particularly the Risk Reward aspect.

Inserted Video
  • #59
  • Nov 6, 2020 5:18am Nov 6, 2020 5:18am
Quoting driven18
I will share my experience of Live Trading for the last 5 years. 1. My R:R is 1:6. I have my Entry with Statistical Edge. I place my 2% Stop Loss with Statistical Edge. I trade hourly bars, at most 2 trades a day. From this moment on it is up to the Gods or Luck or whatever you want to call it. Market will do what Market will do. I do get my R:R Homeruns 6 times a year on average. That is 72% of Profit. Rest of the time, I am happy to be at BE or at +- 2,3 % a month. 2. I also scalp 4, 5 trades a day on 5 min chart with my other technique. The only...
Interesting. So what is your actual R:R for the trades in average?

If you get homerun 1:6 and only close the trade at 1:6 mark, then your trade is 1:6. If you take e.g. 50% at 1:3, and 50% at 1:6, that is 1:4.5. If you take part at 1:3 and then BE, it is 1:1.5.
The actual R:R is known only when a trade is done. 1:6 is just a goal. Isn't it?

I do appreciate your sharing of idea about trailing stops at LTF. Can be useful!
  • #60
  • Nov 6, 2020 7:09am Nov 6, 2020 7:09am
1. What I expect from strategy, is when enter market …
2. What I expect from strategy, is when exit market …
3. What I expect from strategy is positive expectancy…
You can have number of ways to enter the market in your strategy…
You can have number of ways to exit the market in your strategy … some people have more exit strategies then enter strategies… Everything depends what market is doing …
Hard risk reward ratio is for me a huge limitation on trading approach.
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