using poor Risk:Reward

I see experienced traders advocate at least a 1:3 R:R ratio. I have tried aiming at that but my stops get hit very often.

Would it be advised for a beginner to start with a 1:2 - 1:1 R:R ratio and progress to a more favorable ratio with experience?

I using a 40pips SL and 120pips TP (I trade on m15 chart). SOmething experience on mine.

RIsk Reward 1:3

4 scenario available (3 consecutive trades as 1 round):

(1) 3 loss --> -40 * 3 = -120pips
(2) 1win 2loss --> -80 + 120 = 40pips
(3) 2win 1loss --> -40 + 240 = 200pips
(4) 3 win --> 360pips

If we assume the probability of those 4 scenario is equal which means we have 3/4 probability win, and 1/4 probability lose.

When we try to trade with technical and fundamental analysis, we are changing the probability of those scenario. (we assume there is no affection on our probability)

I didn't reallly go into very detail of the calculation yet. But yet in forex trading, I believe money management is the most important key, so as the discipline of a trader.

And check back your journal, why you loss why it hit SL?
Is ok for it to hit SL often if you still winning.

Juz my 2cents

I don't use any risk/reward ratio. This has never worked for me for years. Too often the price turned there where my stop was.

I trade now without stops and with low leverage + multiple entries with a fundamental bias. Of course that doesn't mean that I let losers run forever. From time to time I have to close bad positions where I was obviously wrong.

Using a fix pips stop isn't the best way I think. During these times of increased volatility a fix stop of 40 pips might be too tight. A year ago, where a 50 pips move in the EUR/USD would had been huge, a 40 pips stop might be too big...

It has been my experience that high win rate outweighs a high RR ratio. I think traders often use high RR ratio’s and low risk to compensate for the fact that they are wrong too often. I, on the other hand, focus on beating the market. The biggest reason why my high WR system gains more than a high RR system is because when you win more you have the luxury of using more risk, therefore increasing your returns. Now this is a dangerous claim for the unexperienced, but it works for me nonetheless.

Note: I do not mean to discount high RR systems, I agree that they can be and are profitable.

Despite being popularized by best-selling authors like Van Tharp, IMHO RR is basically meaningless, unless you can somehow calculate a likely target to where price will actually move.

My experience is that simply setting an arbitrary TP of X pips and a SL of Y pips does not in itself provide an edge. Any supposed advantage of high RR is offset by the inherently lower win rate. To provide any kind of edge, TPs and SLs should be based upon technical considerations, e.g. judicious use of S/R levels can provide some excellent low risk entries.

The SL should ideally be placed where the trade has clearly gone wrong technically, e.g. where multiple adjacent S/R levels have all been broken (while also keeping the possibility of SL hunting in mind). It's possible to set a SL according to technical criteria, and then set the position size to keep risk at X% of your account equity.

David

The main thing to take from having a R-R in which the reward is greater than the risk is forcing yourself to not close out winning trades early. So, if you risk 50 pips on a trade and it shoots off in your direction and hits 50 pips quickly, most folks want to close out then because they're happy to have the pips and don't want to lose them. But you really do need to shoot for a larger r-r than 1:1. You have to force yourself to hang in there and let the trade continue. If price is busting through your first support/resistance level, ride it out and see if it makes it to the next one.

As Hanover pointed out, an arbitrary r-r means nothing. Everyone spits out that 1:3 as if it's written in stone somewhere. What you really want is a bunch of small r-r trades and a few monster ones like 1:8. As long as your losses are of a consistent size, then the few monsters are great for your equity balance. In the end, it might average out to 1:3, but you're going to be hard pressed to hit all your winners at 1:3.

wats up kir? you have certainly raised a very sentive issue. most of the so-called experience traders seem to forget the fact that using a high risk to reward ratio is almost useless for a newbie and worse of someone with a small account.i advice you start with scalping.I mean scalping with accurate assessment of the market. Using indicators like pivot points and the rest.
I believe that when you are confident enough after a few scalps you can go for the high risk to reward ratio, cause it actually the best, but it is meant for experienced traders.........Good luck you are going to need it.

hi Kir
ther was already a tread for this
http://www.forexfactory.com/t/163521...setting-1.html