Problem with Risk:Reward | Forex Factory

Options

Permalinks
Print Thread

Similar Threads

What's your TP? Fixed reward vs dynamic reward 5 replies

Low Risk, High Reward Trading Experiment 3,318 replies

Rationale behind "Risk Per Trade" and "Risk/Reward Ratio"? 8 replies

Risk Reward Ratio and Account Risk 30 replies

Results for Low Risk,High Reward 11 replies

Problem with Risk:Reward

  • #1
  • First Post: Jul 9, 2007 9:09am Jul 9, 2007 9:09am
  •  dado26
  • | Joined Mar 2007 | Status: Plan your trade and trade your plan | 180 Posts
I ve got a question for you that really bothers me....

I enter a trade acording my entry rules and trying to aplly risk-reward (1:2) ratio when exiting my trade.but when exiting I use partial exits and acording my rule I take 70-80% of my position when I reach 20pips thaen i leave rest of it to ride possible biger move( I exit that one on rollover of my EMA...) My average stop is from 15-25pips...My system is from 55-70% acurate...

My problem is...how to aplly this 2:1 risk-reward rule in my system...do I have to go for biger reward or tighten my stop-loss(thats not o.k.-it is quite tight...)

I hope that you understan what I was trying to ask you...
Thanks in advance.....
P.S. Posted this question in other threads but didnt get the awnser....so..

http://www.forexfactory.com/images/misc/progress.gif

  • #2
  • Jul 9, 2007 9:48am Jul 9, 2007 9:48am
Quoting dado26
I ve got a question for you that really bothers me....

I enter a trade acording my entry rules and trying to aplly risk-reward (1:2) ratio when exiting my trade.but when exiting I use partial exits and acording my rule I take 70-80% of my position when I reach 20pips thaen i leave rest of it to ride possible biger move( I exit that one on rollover of my EMA...) My average stop is from 15-25pips...My system is from 55-70% acurate...

My problem is...how to aplly this 2:1 risk-reward rule in my system...do I have to go for biger reward or tighten my stop-loss(thats not o.k.-it is quite tight...)

I hope that you understan what I was trying to ask you...
Thanks in advance.....
P.S. Posted this question in other threads but didnt get the awnser....so..

http://www.forexfactory.com/images/misc/progress.gif

Why are trying to implement the 1:2 risk reward ratio in the first place? Just because someone somewhere wrote that it is a good thing it does not mean you need it. You should not try to artificially implement anything into your system unless you have come to the conclusion that it is necessary yourself. That way you will know exactly why it is there, what its purpose is and how to implement it. This may not be exactly the answer you ate looking for but i still hope it helps...
Stubbornly persistent
  • #3
  • Jul 9, 2007 9:53am Jul 9, 2007 9:53am
Well it's hard to answer this question without knowing anything about the system you use.

But I think you answered your own question. If you must meet the 2:1 risk reward ratio and you can't tighten your stops, then you must increase you profit targets.
For me personally, I made the adjustment of going for bigger profits (letting winning trades run) and it's made all the difference.

But why do you need to have a 2:1 risk reward in the first place? Do you have specific reasons for this?

Tom
  • #4
  • Jul 9, 2007 10:01am Jul 9, 2007 10:01am
Quoting moneybags

But why do you need to have a 2:1 risk reward in the first place? Do you have specific reasons for this?

Tom
LOL... That's what i said...
Stubbornly persistent
  • #5
  • Jul 9, 2007 10:08am Jul 9, 2007 10:08am
  •  dado26
  • | Joined Mar 2007 | Status: Plan your trade and trade your plan | 180 Posts
Thanks guys.....
I calculated 1.5:1 would also be o.k. to make it at the end or to be just ahead but position I leave to ride potential biger move has to go 70pips up in 3 of 10 trades.
I look to risk:reward from another prospective...and you know what...You are right....
  • #6
  • Jul 9, 2007 12:34pm Jul 9, 2007 12:34pm
I think that you shouldn't be focusing too much on the risk reward ratio, and study your system more to see what the best profit target would be to get consistent winning trades. (it might be 3:1 )

Backtest & forward test and see what you come up with.


All the best,
Tom
  • #7
  • Jul 10, 2007 7:07am Jul 10, 2007 7:07am
  •  dado26
  • | Joined Mar 2007 | Status: Plan your trade and trade your plan | 180 Posts
Consistency..... lovely word for a lot of us here....
I am really trying but that aspect of trading is I belive the hardes becouse If you make consistent profit then everything works o.k. and you must change nothing!

Consistent trader makes similar entries and exits and at the end of 50-100 trades he is ahead of the game.....

I make some money here and my capital number is higher than I started with but I would like to figure it out why my trades are not as consistent as I want them to be.

Mybe I am not taking everything I could when I open a trade?

Merlin, Dialist ,Fijitrader...do you have any advice?
  • #8
  • Jul 10, 2007 8:31am Jul 10, 2007 8:31am
Quoting dado26
Consistency..... lovely word for a lot of us here....
I am really trying but that aspect of trading is I belive the hardes becouse If you make consistent profit then everything works o.k. and you must change nothing!

Consistent trader makes similar entries and exits and at the end of 50-100 trades he is ahead of the game.....

I make some money here and my capital number is higher than I started with but I would like to figure it out why my trades are not as consistent as I want them to be.

Mybe I am not taking everything I could when I open a trade?

Merlin, Dialist ,Fijitrader...do you have any advice?
Consistent traders still make mistakes and lose money. Consistency is how you react once you realize your mistake. So, not ALL entries and exits are the same, but enough of them are to make money in the long run. Consistency is very important when you hit a run of losing trades and this is precisely when most people find out they aren't consistent.
  • #9
  • Jul 10, 2007 8:31am Jul 10, 2007 8:31am
I don't "force" a risk / reward to my trades.

I watch what is the risk/reward being offered by the market instead.

For instance, Cable bounced off 2.0130 area today, previous resistance, most likely turned to support.

Therefore going long at this price offers the risk= 20 pips (assuming that 0110 would deny the bounce and fuel further downside) and reward 0170 minimum.

That being said, you would have a 20 pips risk for a 40 reward minimum. By minimum I mean, dump partials there and leave the rest for the ride, SL at B/E or locking a few pips in profit.

At this moment, price is 0184 and I see risk 0150 for a reward of 0205 minimum, so a 30 pips risk for a 20 reward. That I don't take.
  • #10
  • Jul 10, 2007 9:03am Jul 10, 2007 9:03am
  •  dado26
  • | Joined Mar 2007 | Status: Plan your trade and trade your plan | 180 Posts
Quoting cesarnc
I don't "force" a risk / reward to my trades.

I watch what is the risk/reward being offered by the market instead.

For instance, Cable bounced off 2.0130 area today, previous resistance, most likely turned to support.

Therefore going long at this price offers the risk= 20 pips (assuming that 0110 would deny the bounce and fuel further downside) and reward 0170 minimum.

That being said, you would have a 20 pips risk for a 40 reward minimum. By minimum I mean, dump partials there and leave the rest for the ride, SL at B/E or locking a few pips in profit.

At this moment, price is 0184 and I see risk 0150 for a reward of 0205 minimum, so a 30 pips risk for a 20 reward. That I don't take.
So you literaly know what is your minimum risk:reward to be ahead of the game and if market doesnt give you that minimum you dont take a trade.
for example if system is so good even 1:1 R:R is enought, but if you dont trade that same system as you should and you destroy it so it is producing just 30% mybe even 3:1 is not exceptable.....
What if your system works in R:R at least 1,5 :1 and you see a trade with lower reward...1,3:1 for example and you think odds are really good that trade goes in your favor...do you take and try to book biger profit or you skip it?
  • #11
  • Jul 26, 2007 5:05pm Jul 26, 2007 5:05pm
Two further points for consideration:

1. When traders talk about R:R, they’re referring to the time of entry. But R:R changes dynamically as the trade progresses, the further price moves from the entry point, and if/when the stoploss is trailed.

2. High R:R is not the holy grail, in fact it is roughly inversely proportional to win rate. As an extreme example, a trader who sets TP 10 pips away from entry and SL 100 pips will have a higher win rate than one who sets TP=100 and SL=10. The aim is to find a balance between R:R and win rate that one can both justify statistically, and feel comfortable with psychologically.

David
  • #12
  • Jul 28, 2007 4:28pm Jul 28, 2007 4:28pm
Here's your answer dado
you didn't take spread into account
here's the formula to calculate your real r:r :=((tp*risk/reward)+spread)/(tp-spread)

eg:if your presumed risk/reward=1/2 & your presumed tp=100 sl=50 on a pair with 4 pips spread here's how to calculate the real risk reward:
=((100*0.5)+4)/(100-4)= 54/96= 4/7 or 0.56 now use this risk/reward to calculate your position size

If you're using smaller sl and tp eg 20:40 the real risk reward is worse
((40*0.5)+4)/(40-4)= 2/3 or 0.666
  • #13
  • Jul 29, 2007 6:25am Jul 29, 2007 6:25am
  •  dado26
  • | Joined Mar 2007 | Status: Plan your trade and trade your plan | 180 Posts
Thanks guys...I just thought R:R number has to be fix part of every trade.
Thanks for comments...
  • #14
  • Jul 29, 2007 7:25am Jul 29, 2007 7:25am
Quoting dado26
I make some money here and my capital number is higher than I started with but I would like to figure it out why my trades are not as consistent as I want them to be.
I agree with the general thought that R:R is subjective. You might, as you open a trade, see 2:1 as POTENTIAL gain but Trade Management dictates that in a continuously moving market such as FX, you may be forced to take profit earlier than planned.
Another thing to consider is that if you're constantly taking partial profit, and your planning relies on a regular 2:1 win ration, a losing streak puts additional pressure on your trading to recover from those losses.
I used to take partial profit (fear of loss on a winning trade) and also wondered why I wasn't making as much progress as my strike rate should mean I should, and the answers here changed my thinking.
I hope this helps, but the answers to these sorts of questions take time and practice to come to terms with.
  • #15
  • Jul 29, 2007 7:45am Jul 29, 2007 7:45am
risk reward ratios are very related to hit ratios. Some systems I have known have a hit ratio of 90% but they have a 3:2 risk reward. While others have a hit ratio of 50%, but higher reward to risk ratio.
Trading for a living!
  • #16
  • Last Post: Jul 30, 2007 3:53am Jul 30, 2007 3:53am
  •  dado26
  • | Joined Mar 2007 | Status: Plan your trade and trade your plan | 180 Posts
Great link PeterFM!!!
I also see partials as a profit killers but when you take them you lock profit.

It is just system-testing and observing what is best for your account....
Now i still take partials but they are set higher than before

I am really greatfull of being part of FF comunity
THANKS!
0 traders viewing now