Win/Loss Ratio and R/R Ratio Link? | Forex Factory

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Win/Loss Ratio and R/R Ratio Link?

  • #1
  • First Post: Edited 3:18pm Nov 8, 2007 3:10pm | Edited 3:18pm
I'm interested in what people think about the relationship between the Win/Loss Ratio and the R/R Ratio.

1.If we want a good R/R ratio, does that mean we should be ready to accept a bad win %? In other words, does having a good R/R Ratio mean that your win percentage will suffer? Example of this would be a typical trend following system, where the win % is usually below 50% but cause the winners are let to run, the R/R Ratio is good. Example of this type of trading, Soultrader.

2.If we want a good win percentage, does that mean we should be ready to accept a bad R/R Ratio? In other words, does having a bad R/R Ratio mean that your win % will be good? Extreme example of this type of trading would be some scalping strategies like Stiviet (the way he trades lately) with 1000 pips SL and 10 pips TP. Stiviet has menaged to get over 300 wins in a row, but the drawdown of his losing trades can be big, hence a bad R/R Ratio.

What's your opinion of the link between the Win/Loss Ratio and R/R Ratio? Is there one? If so, how significant is it? Your experiences and/or research are welcome. Any links to articles,research etc... on this subject are welcome. Let the discussion begin.
  • #2
  • Nov 8, 2007 3:14pm Nov 8, 2007 3:14pm
I like to play around with this thing once in a while. It's not an entirely accurate simulation, as it's not likely your wins and losses are going to be the exact same size every time you trade. However, it's a nice approximation of what to expect, given your track record.
  • #3
  • Nov 8, 2007 3:21pm Nov 8, 2007 3:21pm
Quoting bluebuddha
I like to play around with this thing once in a while. It's not an entirely accurate simulation, as it's not likely your wins and losses are going to be the exact same size every time you trade. However, it's a nice approximation of what to expect, given your track record.
Great Link Bluebuddha, thanks.
  • #4
  • Nov 8, 2007 3:59pm Nov 8, 2007 3:59pm
Quoting fxtrader30

Extreme example of this type of trading would be some scalping strategies like Stiviet (the way he trades lately) with 1000 pips SL and 10 pips TP. Stiviet has menaged to get over 300 wins in a row, but the drawdown of his losing trades can be big, hence a bad R/R Ratio.


If he can hang with this type of abuse, then he's all good I guess. He has 3,000 pips in the bank (or more) - so at this point, when that S/L finally DOES get hit, he's good.

However, just dues to position sizing, I would assume that the reward in monetary value on a trade must be something close to nothing. (Could be wrong, haven't read his thread. But I definitely will now. )

Clockwork
  • #5
  • Nov 9, 2007 10:08am Nov 9, 2007 10:08am
Interesting question.

Quoting fxtrader30

2.If we want a good win percentage, does that mean we should be ready to accept a bad R/R Ratio? In other words, does having a bad R/R Ratio mean that your win % will be good?
In my experience - yes! I think the benefit of good rr is over touted and misleading, imo. When i went for a good RR on every trade it gave a bad hit rate, many trades that could've been decent turned into loss or BE rather than take profit at price that didn't satisfy the ratio, and the wins weren't covering the losses either.

Right now, my rr isn't terrible, but that's just by chance because it's not a consideration in where i have sl or tp. So yeah, i guess both would be nice, but in the end i think ill take a good hit rate over a good rr anyday.
  • #6
  • Nov 9, 2007 10:26am Nov 9, 2007 10:26am
Quoting fxtrader30
Extreme example of this type of trading would be some scalping strategies like Stiviet (the way he trades lately) with 1000 pips SL and 10 pips TP. Stiviet has menaged to get over 300 wins in a row, but the drawdown of his losing trades can be big, hence a bad R/R Ratio.
The problem w/ this type of trading is that you may be carrying few trade that may all it that 1000 pip stop loss at one time eating any profits you gained.

Also what would happen if one of them 1000 pips stops got hit in the first few days?

One other factor that is over looked is your time. How many hours you have to put in to make those pips.

I will say a system like steve can work but is it worth the hours it will take to make those pips is the question.
  • #7
  • Nov 9, 2007 11:13am Nov 9, 2007 11:13am
Great discussion fxtrader. This is the million dollar question for every system builder/follower who truly understand the effects of RR ratios, W/L ratios and Expectancy. Regardless of what your W/L or RR is, the outcome that counts is the expectancy based on those ratios. The optimum for any given system or method of trading is to obviously get the highest win rate for the lowest risk. Well isn't that a perfect world. I think every system is unique unto its' own. The system I deploy has to have a large stop due to my unavailability to watch every tick, and the psychology that plays out by staring at the charts all day. My system is right 60% of the time, but the catch is I have to let the pair move a little first, sometimes up to 150-200pips, but I know eventually it will come around (60% of the time that is). When it does not come back, it does hurt yes, but I know with my expectancy both in backtesting and now in realtime, the end will yield good results. Some people can't handle watching their system go 200pips against them and most will say thats a miss entry, sometimes it is but on a larger TF 200 pips is not the end of the world and with good position sizing, maximum losses can easily be absorbed. Every time I try and squeeze my stop closer to improve the RR, it almost always backfires on me and stops me out prematurely, just to eventually (sometimes immediately) launch in my original trade direction, without me on board, that for me is a much larger psychological blow than riding out an unrealized 200 pip drawdown.

This is just how my system and my psychology works best. I have found the optimum RR and W/L not only for the system as a whole, but for each pair that I am trading (volatility plays a huge part), and for my psyche as a trader. Even though at times I risk 200 pips only to generate 50, I know in the end my method will prevail as my Win/Loss ratio is 2.58 to 1 and an expectancy of 2.02. So I am for the higher win rate to get more pips, however am always seeking a lower risk whilst maintaining that win rate.

NP
  • #8
  • Nov 9, 2007 2:05pm Nov 9, 2007 2:05pm
Eeeekkk, my ears were burning

Well, update on my 'crazy' 1000 stop loss strategy on GBPJPY - in total since late September I've managed to secure nearly 7500 pips and not one of over 400 trades has been stopped out. Thanks to today's action, all trades are closed at present so there is no risk outstanding.

1000 pip stop loss does seem crazy I know - in October I made 40% but floating drawdowns were too large to be comfortable. I've refined the system I use which means less trades. I've also reduced the trade size to 0.2% of account balance, which essentially means a 1000 pip stop loss equals around a 2% loss.

It's all about percentages folks - I bet there are people reading this that a 2% loss equals 10, 20, 50, 100 pips. The 1000 pip stop loss is irrelevant as long as the system is profitable.

I've shared my rigid rules on my methods with a few senior traders here but like all rules, it's about interpretation and then implementation.

Just to give you an idea of how I've done this first week on my revised system...

Day 1 - 7 closed trades totalling 312 pips (d/d carried forward to day 2, 51 pips)
Day 2 - 2 closed trades totalling 100 pips (d/d carried forward to day 3, 422 pips)
Day 3 - 4 closed trades totalling 200 pips (d/d carried foward to day 4, 0 pips)
Day 4 - 3 closed trades totalling 151 pips (d/d carried forward to day 5, 477 pips)
Day 5 - 6 closed trades totalling 304 pips (d/d carried forward to day 6, 0 pips)

So, this first week I've banked 1067 pips over 22 successfull trades, no losses and have no open trades carried over the weekend.

There's many ways to make money in this business & we all have our preferred methods. If what you do works for you, great! Keep doing it but also keep learning.

Have a great weekend all.

Kind Regards
Steve
  • #9
  • Nov 11, 2007 12:57pm Nov 11, 2007 12:57pm
[quote=fxtrader30;1706559]I'm interested in what people think about the relationship between the Win/Loss Ratio and the R/R Ratio.

1.If we want a good R/R ratio, does that mean we should be ready to accept a bad win %? In other words, does having a good R/R Ratio mean that your win percentage will suffer? Example of this would be a typical trend following system, where the win % is usually below 50% but cause the winners are let to run, the R/R Ratio is good. Example of this type of trading, Soultrader.

2.If we want a good win percentage, does that mean we should be ready to accept a bad R/R Ratio? In other words, does having a bad R/R Ratio mean that your win % will be good? Extreme example of this type of trading would be some scalping strategies like Stiviet (the way he trades lately) with 1000 pips SL and 10 pips TP. Stiviet has menaged to get over 300 wins in a row, but the drawdown of his losing trades can be big, hence a bad R/R Ratio.

What's your opinion of the link between the Win/Loss Ratio and R/R Ratio? Is there one? If so, how significant is it? Your experiences and/or research are welcome. Any links to articles,research etc... on this subject are welcome. Let the discussion begin.[/

here is a good link on risk/reward

http://www.movethemarkets.com/blog/2...right-for-you/

and

http://www.goodriskreward.com/selfin...rd-ratios.html

I tend to agree on 1:3 risk reward. I mean if your wrong 75% of the time then you still break even.
  • #10
  • Nov 30, 2007 10:06pm Nov 30, 2007 10:06pm
Quoting fxtrader30
I'm interested in what people think about the relationship between the Win/Loss Ratio and the R/R Ratio.

1.If we want a good R/R ratio, does that mean we should be ready to accept a bad win %? In other words, does having a good R/R Ratio mean that your win percentage will suffer? Example of this would be a typical trend following system, where the win % is usually below 50% but cause the winners are let to run, the R/R Ratio is good. Example of this type of trading, Soultrader.

2.If we want a good win percentage, does that mean we should be ready to accept a bad R/R Ratio? In other words, does having a bad R/R Ratio mean that your win % will be good? Extreme example of this type of trading would be some scalping strategies like Stiviet (the way he trades lately) with 1000 pips SL and 10 pips TP. Stiviet has menaged to get over 300 wins in a row, but the drawdown of his losing trades can be big, hence a bad R/R Ratio.

What's your opinion of the link between the Win/Loss Ratio and R/R Ratio? Is there one? If so, how significant is it? Your experiences and/or research are welcome. Any links to articles,research etc... on this subject are welcome. Let the discussion begin.
Im a bit suprised by the small number of replies this thread got. I would like to hear more trader expiriences on this one, please share.
  • #11
  • Nov 30, 2007 10:10pm Nov 30, 2007 10:10pm
Quoting fxtrader30
Im a bit suprised by the small number of replies this thread got. I would like to hear more trader expiriences on this one, please share.
I have a good win% and sort of bad R/R. It works for me, but I know there are times the win% goes down hurting my profit (ie. this week), but the way I see it all the wins help lessen this.

I do trade several systems that have good R/R, but the one I am proud of is the bad r/r.. Just the way I do it and even if I lose it all now, it isn't really my money anymore. - even though it really is my money, just not my original deposit.
  • #12
  • Last Post: Oct 26, 2011 9:36am Oct 26, 2011 9:36am
Just found this thread, and immediately bookmarked it, as I am studying the relationship between R/R ratio and W/L ratio.

Thanks for the traders who contributed and shared their opinions, even if it has been over 4 years.

regards and happy trading,
BT
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