Moving on from 1:1 Risk-Reward

There are differences in odds and win rate in that picture.
1:1 has a 50% chance and 51% win rate to cover
1:5 has a 10% chance and a 17% win rate to cover.
On the inverse, a 1:0.5 has a 75% chance and a 67% win rate to cover.
A higher reward to risk will always have much fewer trading opportunities as well.

A high risk/reward will you not transfer to someone who will make huge profits. It is more as that. How often will a trade work out if you target 1 Risk to 30 Reward? How often a setup will come?
How often you can find trades with 1:1?
It is more behind this. A good money management need a suitable system in background. Often both picked not well to work together. Say you will trade a high volatility pair as eurusd with 5 Sl and target say ten times more profit. How often will you reach intraday 50 pips? How often you go through a loss before you reach that target?
See you what i mean?
Read the heartbeat of your instrument you picked. Read it and define entry points in respect of the normal breathing that the instrument takes. Only after that make thoughts about a suitable system to trade and take a money management in tune with these facts.

having a fix Risk-Reward is not a good idea the RR ratio needs to be adjustable depending on the type of trade you are taking and how far are you expecting the price to move on either direction. (for example having 1:1 RR on a breakout trade makes no sense just as having 3:1 RR on range scalping trades)

Leverage is a double-edged sword. Moving beyond a 1:1 risk-reward ratio in trading is a significant step that can potentially increase profits, but it's important to understand that with higher potential rewards come higher risks. A risk-reward ratio greater than 1:1 means you're aiming to win more than you're risking on each trade, which can be lucrative but requires careful consideration and strategy.

Here are a few key points to consider when trading with leverage:

Understand your risk tolerance: Before adopting higher risk-reward ratios, assess your risk tolerance. Higher rewards might be appealing, but are you comfortable with the increased risk? It’s crucial to find a balance that aligns with your trading style and psychological comfort. The fear of losing money can make traders emotional, often leading to trades that are illogical and don't follow their plan.

Quality over quantity: With a higher risk-reward strategy, each trade carries more weight. This means that focusing on the quality of your trades—doing thorough research and waiting for the right opportunities—is even more critical than in a 1:1 scenario.

Enhance your analysis skills: Moving to higher risk-reward ratios requires a good understanding of market analysis. You'll need to be adept at identifying potential breakout points, support and resistance levels, and trend reversals to make informed decisions that justify the increased risk.

Use stop losses wisely: Stop losses become even more crucial as you increase your risk-reward ratio/leverage. They should be set in a way that allows your trades enough room to breathe but also protects you from significant losses.

Test and adjust: As with any trading strategy, testing your approach with a higher risk-reward ratio on a demo account can provide valuable insights without risking real money. Based on your results, adjust your strategy and risk management practices accordingly.

Remember, the goal of adjusting your risk-reward ratio is to enhance your trading results, but it should be done with caution and strategic planning.

At ThinkMarkets, we provide traders with dynamic leverage as high as 2000:1. We also offer exclusive features and trading tools to help traders make informed decisions while developing strategies that align with their goals and risk tolerance.

This thread has absolutely nothing to do with your company, which you seem to be spamming, as ever, throughout the forum without even registering as a “commercial member”?!

Exactamundo.

But such is the nature of the market, that when a trader starts drawing arbitrary lines offering 2:1 or 3:1 rr, there is significantly less than a 33% or 25% chance. The Markets Modus Operandi is too hunt liquidity and the bread and butter of market liquidity is found participants Stop Orders, thus the market is geared up to trade against the thought process and analysis of the majority of market participants.

I find myself increasingly moving away from 2:1, 3:1 trades, and closer to 1:1 or less, but with bigger sizes. Allowing that extra headroom, means that even when the market resolves against your thesis, you can still usually get out at scratch, or with a small profit. Utilising a tight stop, in order to get the positive RR trade, as 'they' all say that a trader should, means when the market resolves against you, you definitely lose. It also can also very often mean that even your core thesis was right, the market can still rinse your stop loss before going on to prove you right.

The result has been a much more stable account growth. None of the big upswings, but none of the crushing down turns either. I prefer the stability, and much prefer the lack of charged emotions that a lower RR approach entails also. I also much prefer the freedom to simply hit a level and get a feel for what the market is gonna do, instead of watching like a hawk for divergences, Ms, Ws, and other candle patterns, which are all bullshit anyway. The only thing that matters is choosing the correct level where the market is gonna reverse. Everything else is just bunk.

Edit: Just noticed I replied to this already, saying pretty much the same things.

I think 1:1 is not a good ratio if you do the math here. A trader might have a slightly over 50% success rate let's say over a long time. If you win the same amount of money as you lose on every trade you place, a 53% or 54% success rate won't make you achieve the financial goals that you set up first. We need to consider the spread, commission fees and another kind of costs that may occur.

The ratios will work themselves out even over enough trades. Take a 50/50 trade, double the lot size every loss, losing 5 in a row would have a 3% chance of happening. To profit small or break-even, those trades could start with a 50/50 but with an increased lot size, may only need a 2:1 R:R (67% chance) to at least breakeven.
Win/Loss distribution is also effected by the R-multiple.. an R-multiple above 1 will have greater losing streaks than winning streaks.. the opposite for sub-1R.

The boring method of to 1 risk 10 reward where you trade the breakout of the first hour of tokyo which is 8am to 9am +8gmt has a very small winrate. It is 3 wins out of 20 trades. But total gains is 13 r per month. It's an interesting gamble. Suffice to say 1 trade a month if you win once. Spend time doing something else.

There's also the opposing carry trade idea where you have such a big stop loss and earn swaps daily while making sure you don't get stopped and exit if the htf direction changes or fundamentals change in the carry trade.

It could be 2 atr sl 1 atr tp in direction of the trend and swap. An ok way too. Definitely not something worth doing on small stop losses

U emphasize having a trusted trading system with a 40% win rate. While a high win rate can be psychologically satisfying, a lower win rate can still be profitable if combined with a favorable risk to reward ratio, as you mentioned earlier.

It's a bit more complex than RR and probability.
The equity curve should be smooth too.
Let's say a system on average books a good profit on monthly basis.
But what is the effect of the draw downs and losses on you margin.
Let's say you have a system that makes makes you a guaranteed 100% on monthly basis. Sounds great, doesn't it?
But what if a single trade has the potential of a 25% draw down?
Would that cause a margin call? Or if you have several open trades, would they compensate draw down or amplify it?

You can fix that by trading small positions. But that may negatively affect account growth because 100% of 10k invested is less that 100% of 5k invested.
So all that combined, a system making 25%/month may make your account grow faster than one that makes 100%/month.

I understand the points being made in this thread, but the discussion only considers a very narrow range of trading conditions. There is some missing context:

1. some posters in this thread think that SL = risk = avg loss and TP = reward = avg win, there is a reason why these separate terms exist and they are not interchangeable
2. this discussion doesn't consider the time horizon / holding period aspect. The higher the "reward" the longer time it takes to play out, making high reward strategies incompatible with shorter term trading unless using extremely tight stops
3. the discussion is based around mechanical or even automated trading strategies, with no consideration regarding setup quality, market conditions or why a particular setup should or shouldn't be traded.

Shifting from a fixed 1:1 to expectancy (win rate x avg win – loss rate x avg loss) changed my results— -my data supported 0.8R average loss vs 1.4R average win with a ~48% hit rate