Risk/Reward = 2:1; What should be the needed winning rate to stay BE? | Forex Factory

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Risk/Reward = 2:1; What should be the needed winning rate to stay BE?

  • #1
  • First Post: Feb 13, 2009 5:48pm Feb 13, 2009 5:48pm
Hi guys,

this is probably quite a "beginnerish" question, but since I'm bad at math and can't google up the answer, I'm asking it here.

My average winning rate is 80% and I always risk 40 pips to gain 20 pips. This works very nice for me, but I wonder, what is the lowest winning rate (in % terms) that I can afford just to keep break even? How could I calculate this?

Thanks!
  • #2
  • Feb 13, 2009 6:13pm Feb 13, 2009 6:13pm
Quoting hendrix
Hi guys,

this is probably quite a "beginnerish" question, but since I'm bad at math and can't google up the answer, I'm asking it here.

My average winning rate is 80% and I always risk 40 pips to gain 20 pips. This works very nice for me, but I wonder, what is the lowest winning rate (in % terms) that I can afford just to keep break even? How could I calculate this?

Thanks!

That's easy.
You need double the winners than the losers to get BE. (2*20 = 1*40)

On 100 trades:
You divide 100 among 3 (2 for wins 1 for loss), that's 66,66% wins, 33,33% losses = 1333,20 (pips on each side).
  • #3
  • Feb 13, 2009 6:15pm Feb 13, 2009 6:15pm
You need to win 2/3 to BE. Thus 67% to remain positive, 66.666666667....% to BE. Sounds like if you are at 80% you have some room to move down, so what you are doing seems good. Over how long a period has 80% been your average?
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • #4
  • Feb 14, 2009 2:39am Feb 14, 2009 2:39am
Quoting doblece
That's easy.
You need double the winners than the losers to get BE. (2*20 = 1*40)

On 100 trades:
You divide 100 among 3 (2 for wins 1 for loss), that's 66,66% wins, 33,33% losses = 1333,20 (pips on each side).
Thank you, sir!
  • #5
  • Feb 14, 2009 2:55am Feb 14, 2009 2:55am
Quoting StockKJay
You need to win 2/3 to BE. Thus 67% to remain positive, 66.666666667....% to BE. Sounds like if you are at 80% you have some room to move down, so what you are doing seems good. Over how long a period has 80% been your average?
Thank you for you answer!

I'm averaging 80%+ for the last three months (using only trend lines and S&R) trading only EUR/USD and USD/CHF.

In fact, in February I had 15 trades so far and 14 of those were winners, which is a 94% win rate. And this month was another month which proved that 2:1 R/R works for me... Which is kind of scary, because almost no one is promoting it and I wonder if this works in trading range markets only or will it do it's job in trending markets also...

Anyway, I always write down "what if" scenarios for my trades and this is what I got for this month:

1) If I would use a 40 pip pip-by-pip TSL after entering my trades, I would end up with 20 pips in profit so far.
2) If I would use a 40 pip pip-by-pip TSL's and a 40 pip PT, I would end up with 148 pips in profit so far.
3) If I would use a a 40 pip pip-by-pip TSL's and close my trades "manually", I would en up with 188 pips in profit so far.
4) And because I used 40 pip pip-by-pip TSL's and I had a 20 pip PT, I ended up with 280 pips in profit.

I will have to trade in some nice trending markets before I can conclude that this is "the best" way of trading for me. But never in my life before had I such a success when targeting 1:1 R/R, 1:2 R/R or higher R/R.

Thanks again.
  • #6
  • Feb 14, 2009 3:08am Feb 14, 2009 3:08am
What time frame do you trade and what charts do you use? and what does TSL and PT stand for? Sorry I'm a noob....
  • #7
  • Edited 9:44am Feb 14, 2009 4:15am | Edited 9:44am
Quoting Y2a
What time frame do you trade and what charts do you use? and what does TSL and PT stand for? Sorry I'm a noob....
I use H4 time frames to find the setups (trend lines and support & resistance lines) and I fine tune these on the H1 TF.

I use MetaTrader 4 platform and I use basic charts with the standard OHCL (Open High Close Low) bars. I use no indicators... Not a single one.

TSL = Trailing Stop Loss (it means that when you enter a trade and it goes in your favor, the Stop Loss gets "automatically" adjusted - if the trades goes in your favor, for example, 5 pips, your Stop Loss will get smaller by 5 pips)
PT = Profit Target

Btw, I studied Jacko, BillyRayValentine and Nick B. from Forex4Noobs. "My" method is personalized based on their teachings. It took me about a year of hard studying and learning by trading live (experimenting and making quite a lot of errors). But now I'm happy with my trading and plan to go full time in the future IF I can keep my consistency for about a year.
  • #8
  • Feb 14, 2009 8:00am Feb 14, 2009 8:00am
Don't forget your costs - don't they figure into your calculations too? Spreads, commissions, slippage, errors, your time etc.. If you won 2/3 of the time with this strategy it'd be a slow death, but a death nonetheless. You may have figured out your theroetical break even point (or someone else had to tell you, which you ought to be embarrassed about) but the actual break even point requires a higher win rate.
  • #9
  • Edited 9:46am Feb 14, 2009 9:34am | Edited 9:46am
Quoting birdt
Don't forget your costs - don't they figure into your calculations too? Spreads, commissions, slippage, errors, your time etc.. If you won 2/3 of the time with this strategy it'd be a slow death, but a death nonetheless. You may have figured out your theroetical break even point (or someone else had to tell you, which you ought to be embarrassed about) but the actual break even point requires a higher win rate.
Thanks for the theory, but I'm sitting on 280 pips of profit made in 10 trading days, with a 94% accuracy. If this is how slow death looks like, then I like it pretty much.

Btw, spreads are minimal, when trading with ECN type of broker (sometimes 0, when trading pairs like EUR/USD and USD/CHF), commissions are SUPER low, splippage almost nonexistent, I err 6% of the time and about my time spent on trading... I don't sit all day by the computer. I have my TL's and S&R lines already drawn and all I need to do is to monitor them on my mobile phone. When the time is right, I get in and monitor the trade for max. 1 hour.

I am a bit embarresed about asking the question but thanks to cool people I am now able to calculate this figures by myself.

EDIT: January was ended with 240 pips in profits and December with 310.
EDIT 2: Almost forgot - because I use Trailing Stop Losses (pip-by-pip) my actual RR is smaller than 2:1. Since I trade this way, I took only three times a full blow of 40 pips. Most of the time I get out @ about 20-25, which lowers my actual RR almost to 1:1.
  • #10
  • Feb 14, 2009 10:38am Feb 14, 2009 10:38am
Congratulations hendrix. Note that I said that if you won 2/3 of the time, which was the theoretical break even point, you would suffer a slow death. 94% is nothing to be embarrassed about, that's an unbelievably high success%.

You made 15 trades with SL of 40 and TP of 20, 14 of which were winners. In theory 14 X 20 = 280. So what happened to the loser? Maybe your arithemetic is as bad as you say. Newbs should be encouraged though that someone with the maths skills of a 10 year old can achieve such a remarkable success%
  • #11
  • Feb 14, 2009 10:42am Feb 14, 2009 10:42am
Quoting birdt
Congratulations hendrix. Note that I said that if you won 2/3 of the time, which was the theoretical break even point, you would suffer a slow death. 94% is nothing to be embarrassed about, that's an unbelievably high success%.

You made 15 trades with SL of 40 and TP of 20, 14 of which were winners. In theory 14 X 20 = 280. So what happened to the loser? Maybe your arithemetic is as bad as you say. Newbs should be encouraged though that someone with the maths skills of a 10 year old can achieve such a remarkable success%
LMAO, hendrix just been shot down!!
Living the adventure in my head.
  • #12
  • Feb 14, 2009 10:54am Feb 14, 2009 10:54am
Quoting birdt
Congratulations hendrix. Note that I said that if you won 2/3 of the time, which was the theoretical break even point, you would suffer a slow death. 94% is nothing to be embarrassed about, that's an unbelievably high success%.

You made 15 trades with SL of 40 and TP of 20, 14 of which were winners. In theory 14 X 20 = 280. So what happened to the loser? Maybe your arithemetic is as bad as you say. Newbs should be encouraged though that someone with the maths skills of a 10 year old can achieve such a remarkable success%
I'll admit it without a problem - I forgot to include it in the calculation. It was a 32 pip loss, which lowers my wins to 248 pips. My bad.
  • #13
  • Edited 5:22pm Feb 14, 2009 11:19am | Edited 5:22pm
Ive just read through the thread.......

I traded for 1 1/2 months and documented my trades in my journal, I didnt do too bad. I was also risking more to win less, it worked out OK in the testing period.

Im going to go live with a little testing cash in the coming months, that should keep my interest. Demo trading is so unbeleivably boring.
Living the adventure in my head.
  • #14
  • Feb 14, 2009 11:36am Feb 14, 2009 11:36am
Quoting Leonlorenzo
Ive just read through the thread.......

I traded for 1 1/2 months and documented my trades in my journal, I didnt do too bad. I was also risking more to win less, it worked out OK in the testing period.

Im going to go live with a little testing cash in the coming months, that should keep my interest. Demo trading is so unbeleivably boring.
You should try to trade "live" if possible - it's WAY more educational (because of the emotions involved), than demo trading. Find some broker who let's you trade micro lots and even if they are just micro lots, you will feel the pain, when you loose. And when you feel the pain, you can learn incredibly much.
  • #15
  • Last Post: Feb 14, 2009 12:47pm Feb 14, 2009 12:47pm
Your live test sounds more like an inoculation to boredom than necessarily an idea to stick very long with. One can then move a lot of the live test's feelings into demo trading fairly easily.
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