Now as many of you are trading using a set of rules with a set of risk reward ratio, i would like to talk about RR ratio aswell as the success rate of hitting either the SL(Risk) or the TP(Reward)
There are two distinct group of traders , one is those who prefer a RR ratio of 1:1 and above. This ensures that every trade has a higher reward than the money we risk to win that reward. This is the Basics of Gambling such as the Texas Poker we play. We do not risk $100 capital to try to win a Pot of $5
We Either risk $1 to win $5, or try to bluff our way out with a maximum of risking $5 for $5 reward. This is call Value bet.
How ever in trading, this is not the case. You dont try to bluff your way out, you fool no one in trading but yourself. In trading, the market is like a wave, going up and down. Long story cut short, you get the story.
If we compare risking $100 to try to win $5 VS Risking $5 to try to win $100.
( as an extreme )
We can then conclude that the probability of winning of the first case is much higher than the probability of winning on the second case as this is not poker.
For the first case
If our win rate is 80%, and if we make 100 trades, then we would win 80 trades and made $400 , and lose 20 times which is -$2000.
For the Second case
If our win rate is 20%, and if we make 100 trades, then we would win $2000 and lose 80 times which is -$400
Now ofcourse , our human mind thought that the second case would be better, however traders must recognize that there are Two distinct market behaviour aswell, consolidation and trending markets.
If you did use the second case strategy on a consolidation market, your chance of winning would be 0% instead of 20%.
If you did use the first strategy on a consolidation market, your chance of winning would be 100% instead of 80%.
So the basic idea here is to Find a balance between the RR ratio , no extremes, and then apply accordingly to the situation , such as the Range of the consolidation using targets measured by S/R and Fibonacci. Normally by setting a SL and then a Target profit level.
However i have seen alot of people using FIXED Risk reward, not ratio.,regardless of market situation or trading range. Like, 20 pips SL means 20 pips SL... or 20 PIPS TP means 20 PIPS TP.
What do you think? do you set 20 pips TP and 20 PIPS SL EVERY TRADE?
or do u measure your TP first, and then only apply your RR ratio to your SL? or vice versa.
please be honest with the poll
There are two distinct group of traders , one is those who prefer a RR ratio of 1:1 and above. This ensures that every trade has a higher reward than the money we risk to win that reward. This is the Basics of Gambling such as the Texas Poker we play. We do not risk $100 capital to try to win a Pot of $5
We Either risk $1 to win $5, or try to bluff our way out with a maximum of risking $5 for $5 reward. This is call Value bet.
How ever in trading, this is not the case. You dont try to bluff your way out, you fool no one in trading but yourself. In trading, the market is like a wave, going up and down. Long story cut short, you get the story.
If we compare risking $100 to try to win $5 VS Risking $5 to try to win $100.
( as an extreme )
We can then conclude that the probability of winning of the first case is much higher than the probability of winning on the second case as this is not poker.
For the first case
If our win rate is 80%, and if we make 100 trades, then we would win 80 trades and made $400 , and lose 20 times which is -$2000.
For the Second case
If our win rate is 20%, and if we make 100 trades, then we would win $2000 and lose 80 times which is -$400
Now ofcourse , our human mind thought that the second case would be better, however traders must recognize that there are Two distinct market behaviour aswell, consolidation and trending markets.
If you did use the second case strategy on a consolidation market, your chance of winning would be 0% instead of 20%.
If you did use the first strategy on a consolidation market, your chance of winning would be 100% instead of 80%.
So the basic idea here is to Find a balance between the RR ratio , no extremes, and then apply accordingly to the situation , such as the Range of the consolidation using targets measured by S/R and Fibonacci. Normally by setting a SL and then a Target profit level.
However i have seen alot of people using FIXED Risk reward, not ratio.,regardless of market situation or trading range. Like, 20 pips SL means 20 pips SL... or 20 PIPS TP means 20 PIPS TP.
What do you think? do you set 20 pips TP and 20 PIPS SL EVERY TRADE?
or do u measure your TP first, and then only apply your RR ratio to your SL? or vice versa.
please be honest with the poll
