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FX Math: Expected Return based on Risk:Reward ratios

  • #1
  • First Post: Jun 8, 2023 3:22pm Jun 8, 2023 3:22pm
Without too much discussion on EMT.. If the market was perfectly efficient & levels had large enough room that the spread won't be a factor.

What will the expected win/loss ratio be on a 1:1 R:R ratio.. 50%? What would the expected return be on a 1:2 ratio.. 25%? Then a 1:3 would be.. 17%? (3 times harder to achieve than the 50% of the 1:1?)
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  • #2
  • Jun 8, 2023 3:35pm Jun 8, 2023 3:35pm
I manually backtested with different ratios. The 1:1 ratio gave me 50-53% win rate. The 1:0.6 gave me 60% win rate. The 1:1.5 gave me 40% win rate. If the 1:1.5 RR odds were 37.5% (taking the average of the 1:1 50% win rate and 1:2 25% win rate)

This was manual trading with 1 ADR stop loss. I used 3 securities over the course of 2022.
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  • #3
  • Jun 8, 2023 11:25pm Jun 8, 2023 11:25pm
Ouch, moved me to Rookie Talk. Anyone?

Maybe a wise moderator could help...
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  • #4
  • Jun 8, 2023 11:34pm Jun 8, 2023 11:34pm
Hi,

It's not really clear what question you're asking, maybe expand a little on what it is you're doing, which instruments you've back-tested on, etc... Were they trending, ranging, how were the trades placed and at what time and so on. What you've shown so far is too vague for any comments. I suspect they moved you here because of these points and there weren't any specifics thrown open to discuss in the Trading Discussion thread.

Regards, Paul.
  • #5
  • Jun 8, 2023 11:35pm Jun 8, 2023 11:35pm
Ive been on this site for 13 years now. I had to go Commercial member for working with DarkStar in OrdeflowTrading.
These concepts are far from rookie talk.. it's the inner workings of the retail market.
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  • #6
  • Jun 8, 2023 11:37pm Jun 8, 2023 11:37pm
Quoting pah
Hi, It's not really clear what question you're asking, maybe expand a little on what it is you're doing, which instruments you've back-tested on, etc... Were they trending, ranging, how were the trades placed and at what time and so on. What you've shown so far is too vague for any comments. I suspect they moved you here because of these points and there weren't any specifics thrown open to discuss in the Trading Discussion thread. Regards, Paul.
The backtest results are even across all FX, Crypto, and Metal markets. Specifically I traded 2022 manually in BtcUsd XauUsd and EurUsd

The trade's entry doesn't really matter. I know I'll hear it from everyone but the trade entry level is probably the least important part of the trade.
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  • #7
  • Jun 8, 2023 11:42pm Jun 8, 2023 11:42pm
The fallacy is that a 1:2 risk:reward ratio is impossible to win 50% of trades. It'll be 25%.
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  • #8
  • Jun 8, 2023 11:56pm Jun 8, 2023 11:56pm
I'd say from my own experience that such a strategy would depend significantly on the time of day and where the instrument is currently situated(within it's daily/weekly range) and where it is in relation to other important levels. Also, you could apply this to a trending instrument and virtually guarantee much better returns than you would gain otherwise. I don't think the win ratio versus risk/reward can be applied in such a way that gives you any edge in profitability without taking the other things into consideration.
  • #9
  • Jun 9, 2023 12:01am Jun 9, 2023 12:01am
Just sell high and buy low relative.. . A weekly swing high/low works. Or one of my most consistent levels is retail stop zones for entry.
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  • #10
  • Jun 9, 2023 12:20am Jun 9, 2023 12:20am
Quoting Ryan420
Just sell high and buy low relative.. . A weekly swing high/low works. Or one of my most consistent levels is retail stop zones for entry.
The trade's entry doesn't really matter.

Confused now...
  • #11
  • Jun 9, 2023 12:59am Jun 9, 2023 12:59am
Quoting pah
{quote} The trade's entry doesn't really matter. Confused now...
Not really. I had the same stats with a 1:1 RR. Can you show me an entry criteria that would lose more than it wins? Bc I can inverse that and there's the edge.
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  • #12
  • Last Post: Jun 9, 2023 3:22am Jun 9, 2023 3:22am
Just sucks. FF is paid to promote misinformation. I just had a broker FX course on how they pay Forex sites to spread incorrect info in exchange for payment. We won't be able to have a real discussion.. or else this will end up in Rookie Discussion.
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