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What Is a 3:1 Reward to Risk Ratio?

  • #61
  • Nov 6, 2020 7:38am Nov 6, 2020 7:38am
Quoting tommydoginti
{quote} 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!
Yes, 1:6 is just a goal. The goal achieved 6 times a year. Rest of the time it is whatever market gives, 1:1 or 1:2, etc.. Stop Losses, etc...out by the end of NY session to repeat the same technique the next day.
  • #62
  • Nov 6, 2020 2:27pm Nov 6, 2020 2:27pm
Quoting Koop
{quote} 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. https://www.youtube.com/watch?v=phIPZRbbWs8
As usual, I think he is talking about the stock market. At least that was what he referred to at the beginning. I watched most of the vid but that is not how I trade.
I don't watch the market, hone in on a pair and calculate RRR and stick to it and increase my reward by lowering my risk and doubling my trade size based on a formula etc. etc. No 19 times loss and one time win mantra for me.

I think I have mentioned it before that to me FX is a high frequency market and the up/down/sideways action is continually going on. I'm not the type who jumps in upon exhaustion of a trend in order to ride the new trend until it's completion. I am constantly in and out depending on momentum and volatility. If I leave some money on the table, so what? I will be jumping on another trade and another and another. No time to contemplate RRR especially with a formula.

The RRR mentality just doesn't work for me but thanks for your help.

ps: I don't use SL, so kinda hard to calculate RR but I am including SL for the purpose of pleasing the funders but I don't expect them to be hit. Just a formality to satisfy their need to see SL on trades.
  • #63
  • Nov 7, 2020 3:39am Nov 7, 2020 3:39am
Quoting OutThere
{quote} As usual, I think he is talking about the stock market. At least that was what he referred to at the beginning. I watched most of the vid but that is not how I trade. I don't watch the market, hone in on a pair and calculate RRR and stick to it and increase my reward by lowering my risk and doubling my trade size based on a formula etc. etc. No 19 times loss and one time win mantra for me. I think I have mentioned it before that to me FX is a high frequency market and the up/down/sideways action is continually going on. I'm not the type...
Oh, in the end, all that should matter is that what you do/believe works for you. It all comes down to individual strategy, i personally do not have the best win rate, so i make up for it by squeezing out as much as i can from the trades that actually work out.
  • #64
  • Edited 2:20am Nov 8, 2020 2:00am | Edited 2:20am
Quoting ryuryu
I have tested tons of strategies and I can admit that trading with stop loss (same with hard TP and SL aka RR) = 100% guarantee to ruin your account.
Not using a SL will ruin your account just as easily. You have to know when to give up on a trade. If you hedge you have to know when to close it so that your other trade will profitable. You cannot avoid closing some trades for a loss. That's all a stop loss is.

Also, every single trader has an average risk:reward. Sometimes it's more or less for a specific trade but my guess is that the average is fairly consistent. Having said that, your average rr better work out with your win loss expectancy if you want to make money (edge). At the end of the day the only thing that matters is if you have the ability to buy low and sell high. If you can't do this, none of your stategies will work.
  • #65
  • Nov 8, 2020 5:41am Nov 8, 2020 5:41am
Quoting beastwork
{quote} Not using a SL will ruin your account just as easily. You have to know when to give up on a trade. If you hedge you have to know when to close it so that your other trade will profitable. You cannot avoid closing some trades for a loss. That's all a stop loss is. Also, every single trader has an average risk:reward. Sometimes it's more or less for a specific trade but my guess is that the average is fairly consistent. Having said that, your average rr better work out with your win loss expectancy if you want to make money (edge). At the...
That's right. Anyone who doesn't know how to trade without SL, should use SL.
  • #66
  • Nov 8, 2020 11:00pm Nov 8, 2020 11:00pm
Quoting beastwork
{quote} Not using a SL will ruin your account just as easily. You have to know when to give up on a trade. If you hedge you have to know when to close it so that your other trade will profitable. You cannot avoid closing some trades for a loss. That's all a stop loss is.
Managing basket trades is not SL. SL is when you set +100 tp and -50 sl. Here you wait for luck. If you manage your positions, hedging, recovering etc this is not SL and you are using math here. Math and magic are different things.

Quoting beastwork
{quote} Also, every single trader has an average risk:reward. Sometimes it's more or less for a specific trade but my guess is that the average is fairly consistent. Having said that, your average rr better work out with your win loss expectancy if you want to make money (edge). At the end of the day the only thing that matters is if you have the ability to buy low and sell high. If you can't do this, none of your stategies will work.
If my opinion RR is a bullshit. It can't be static or average because market is different every day. SL, RR and trading higher TFs are just a great forex fairy tale for newbies to let them ruin their accounts as fast as possible.
Observer effect
  • #67
  • Nov 8, 2020 11:28pm Nov 8, 2020 11:28pm
Quoting ryuryu
{quote} Managing basket trades is not SL. SL is when you set +100 tp and -50 sl. Here you wait for luck. If you manage your positions, hedging, recovering etc this is not SL and you are using math here. Math and magic are different things. {quote} If my opinion RR is a bullshit. It can't be static or average because market is different every day. SL, RR and trading higher TFs are just a great forex fairy tale for newbies to let them ruin their accounts as fast as possible.
Talking in absolutes with so much certainty says how little you understand the beast which is the financial markets. Nothing that works for someone else other than yourself is rubbish. That fact that you can't use SL or fixed mechanical risk management successfully just means exactly that ; you can't or you prefer something else. Doesn't mean it's rubbish.

I have tried every risk management style possible and the one which works for my strategy is having a predetermined level where my trade idea is considered wrong and more often than not, that is always the case. I want to be wrong quick, not spending hours or days managing a trade with hedges or whatever.

To each his own.
  • #68
  • Nov 9, 2020 1:15am Nov 9, 2020 1:15am
Quoting Koop
{quote} says how little you understand
I'm for sure don't know anything. Especially I'm not good with fairy tales.
BTW you can show me successful RR (using SL) strategy. But please don't start that "your eyes is better indicator" and "look at the historical data, can't you see where you have to enter/exit and where not?".
Observer effect
  • #69
  • Nov 10, 2020 12:50pm Nov 10, 2020 12:50pm
Quoting ryuryu
Managing basket trades is not SL. SL is when you set +100 tp and -50 sl. Here you wait for luck. If you manage your positions, hedging, recovering etc this is not SL and you are using math here. Math and magic are different things.
I see what your point is, but it's semantics.

IIf I have an edge that consistently works I can use the same R:R on every trade and make money. But it is not the only way to skin the cat. Either way, you need a plan to get out of a trade on either side. Maybe your plan changes mid trade, but you need to have a system that dictates your next action. Otherwise you're just pissing in the wind. People say they follow their instincts in a lot of situations. Instincts are nothing more than your brain processing a situation based on current observations and previous outcomes. Instincts are a function of systems developed in your brain.


Quoting ryuryu
If my opinion RR is a bullshit. It can't be static or average because market is different every day. When I set a stop loss it's at the level that I want to exit based on my analysis of the market. You can have that price in your head, on a piece of paper, or with the broker, it makes no difference.
Tell that to the casinos. You need an edge, period. Discarding SL is not an edge. SL is not an edge.
  • #70
  • Nov 22, 2023 2:38pm Nov 22, 2023 2:38pm
Quoting Koop
{quote} Talking in absolutes with so much certainty says how little you understand the beast which is the financial markets. Nothing that works for someone else other than yourself is rubbish. That fact that you can't use SL or fixed mechanical risk management successfully just means exactly that ; you can't or you prefer something else. Doesn't mean it's rubbish. I have tried every risk management style possible and the one which works for my strategy is having a predetermined level where my trade idea is considered wrong and more often than not,...
  • #71
  • Edited 6:43pm Nov 22, 2023 6:19pm | Edited 6:43pm
Quoting OutThere
The subject of 3:1 Reward to Risk Ratio came up in another thread and I decided to look into it. Personally, setting an arbitrary number based on when you decided to enter a trade is a weird notion to me. When you decide to enter, you are not only making a decision to enter, you are also deciding the time frame of your entry (With it's own issues like one TF says buy and another says sell), as well as the exit directions and the extent of which on either side. It is a stock market rule that seems to have found it's way to FX trading. It goes with...
Hi friend, the rr isn't really arbitrary if you start your analysis from where your projected tp is and then divide that by 4, on the 1/4, that is where you would put your entry, and then hold on to dear life.

The key is risking little.

Like i do 1 to 5 rr. Meaning 1 risk 5 reward using this method and it fails most of the time, but the result if one win covers many many loses.

It is not simply a method where you see an entry, you set to to 5.

https://www.tradingview.com/x/kXtuhary

here is a sample trade using dr idr.

Stop loss at the 50% of the fib of the indicator. Exit at the odr 50%

Reward was more than 5rr. But like i said. It rarely works out like this.
Trading is gambling. So gamble responsibly.
  • #72
  • Nov 22, 2023 7:24pm Nov 22, 2023 7:24pm
Quoting Sovy
{quote} Hi friend, the rr isn't really arbitrary if you start your analysis from where your projected tp is and then divide that by 4, on the 1/4, that is where you would put your entry, and then hold on to dear life. The key is risking little. Like i do 1 to 5 rr. Meaning 1 risk 5 reward using this method and it fails most of the time, but the result if one win covers many many loses. It is not simply a method where you see an entry, you set to to 5. https://www.tradingview.com/x/kXtuhary here is a sample trade using dr idr. Stop loss...
The key is risking little.

Like i do 1 to 5 rr. Meaning 1 risk 5 reward using this method and it fails most of the time, but the result if one win covers many many loses.

  • #73
  • Nov 22, 2023 8:52pm Nov 22, 2023 8:52pm
Quoting Sovy
{quote} Hi friend, the rr isn't really arbitrary if you start your analysis from where your projected tp is and then divide that by 4, on the 1/4, that is where you would put your entry, and then hold on to dear life. The key is risking little. Like i do 1 to 5 rr. Meaning 1 risk 5 reward using this method and it fails most of the time, but the result if one win covers many many loses. It is not simply a method where you see an entry, you set to to 5. https://www.tradingview.com/x/kXtuhary here is a sample trade using dr idr. Stop loss...
If you look at many threads in Interactive Trading and for that matter anywhere, you will see speculators speculating where the price will go and what is the target for that move. That is the art of speculating. Some use indicators, some use TA and some go by sentiment etc. That is all fine and well. I think "analysis from where your projected tp is" is part of that mantra. I tend to not speculate where the price is going because I simply don't know or if I can guess, I don't give it much value because my guess would be a fleeting one, Instead, I go for a dynamic averaging method that assumes all prices are floating aimlessly and can skid off the track at any given moment. I know it's kinda vague but what I'm saying is that I have eliminated having to guess or project my biases onto the price and where it is headed, so I'm not heeding the RR much. My approach is more like industrial processing of tuna rather than the refined custom made individual dish made at a 5 star restaurant
  • #74
  • Nov 22, 2023 9:05pm Nov 22, 2023 9:05pm
Quoting OutThere
{quote} If you look at many threads in Interactive Trading and for that matter anywhere, you will see speculators speculating where the price will go and what is the target for that move. That is the art of speculating. Some use indicators, some use TA and some go by sentiment etc. That is all fine and well. I think "analysis from where your projected tp is" is part of that mantra. I tend to not speculate where the price is going because I simply don't know or if I can guess, I don't give it much value because my guess would be a fleeting one, Instead,...
we simply have to do what works for us, especially if you are profitable. The tp backwards works for me, which is why i do it. It does not work for others.
Trading is gambling. So gamble responsibly.
  • #75
  • Nov 22, 2023 9:35pm Nov 22, 2023 9:35pm
Quoting Sovy
{quote} we simply have to do what works for us, especially if you are profitable. The tp backwards works for me, which is why i do it. It does not work for others.
I like your explanation of how to view rr tho. I have played with the rr indys where you pull the rectangles for rr. Pretty cool. I like them for putting distances of a possible trade into a visual plan. I'll apply your 1/5 method to those indys to get a better feel for target analyzing.
  • #76
  • Nov 22, 2023 9:54pm Nov 22, 2023 9:54pm
Quoting OutThere
{quote} I like your explanation of how to view rr tho. I have played with the rr indys where you pull the rectangles for rr. Pretty cool. I like them for putting distances of a possible trade into a visual plan. I'll apply your 1/5 method to those indys to get a better feel for target analyzing.
The indicator is freely available in tv by m7. Dr idr.

a more detailed explanation is by m7 in his yt.

another is by ict like htf fvgs.

hope it works for you.
Trading is gambling. So gamble responsibly.
  • #77
  • Nov 22, 2023 10:04pm Nov 22, 2023 10:04pm
Issue is that to get into the game of RR decisions, one must use a SL. One must fundamentally believe that SL is part and parcel of trading. Without it, pack up and go home.

I have an issue with using SL.
Probably a psychological condition beyond repair.

As such, I think I have always leaned towards trading in a way that is suitable for not using SL.
That puts me at odds with RR the way it is used.
You could say my SL is 100% and TP depends on what the market wants to give.
It's just a matter of spice from there on.
Just a fringe hippy approach.
  • #78
  • Nov 22, 2023 10:12pm Nov 22, 2023 10:12pm
Quoting OutThere
I'll apply your 1/5 method .
//-----

imagine you were risking 1000 to make 5000......

or put another way, imagine your 1 standard eurusd trade had a 100 pip stoploss and a 500 pip profit target......

some might say that represents 1/5.......

now, imagine the trade went 450 pips in your favor...... what is your true risk to reward at this point.......

aren't you now risking 5500 to make 500......

what does that represent......h
to trade and code, keep both simple... no call to impress....h
  • #79
  • Nov 22, 2023 10:32pm Nov 22, 2023 10:32pm
Quoting hayseed
{quote} //----- imagine you were risking 1000 to make 5000...... or put another way, imagine your 1 standard eurusd trade had a 100 pip stoploss and a 500 pip profit target...... some might say that represents 1/5....... now, imagine the trade went 450 pips in your favor...... what is your true risk to reward at this point....... aren't you now risking 5500 to make 500...... what does that represent......h
I had to read that a cpl of times.
It's actually really deep. Where do I even start?

Tricky guestion.

I think it points at where we divide market money from own money. So, at 450 profit, assuming we have banked that, yes risking 5500 to make 500. The RR is definitely out of wack at that moment. So, it is a rigid target set at the beginning of the trade and adhered to. However, if still in trade and everything goes to hell, then one could look back thinking they should have got out at that level instead of being greedy and hang on for full target. Decisions decisions.

That is the struggle to make, keep and increase the seed and sometimes coming from some loss/dd on hand. At all times, that burden...if I can call it that...of RR will have come along the way and assessed and reassessed.

Trading a continuation of events. Trading is made of many moments with their associated events and risks and at any moment decisions of risk have to be assessed and based on current equity/targets and that would need a whole department of it's own with on the go RR assessment analysis for each trade.
  • #80
  • Edited 11:03pm Nov 22, 2023 10:42pm | Edited 11:03pm
Ok guys, I feel bad that I maybe promoting or condoning not using SL. Not at all. I think it has it's place and very important to many trading styles that call for it.
Trailing stops are great tho.
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