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Always Trading With a 1/1 RR Ratio

  • #1
  • First Post: Aug 29, 2010 12:43pm Aug 29, 2010 12:43pm
My method of trading involves always taking profit at 1R accept for rare occasions (1 in 10) where i may stay in the market longer if there are very good reasons to. Even then i would always scale out and take profit fairly soon.
But for the sake of this thread lets just assume i always take profit at 1R. So its basically a win or lose system but there a a few situations where i will move to BE as well but that is irrelevant here.

I would like to know if any long term profitable traders use a system where they always or mostly take profit at 1R and what the pro's and con's of doing this are. I would also like to hear peoples thoughts about the chances of long term success while trading like this.

Not that it matters but so far i have been able to achieve a 70% win ratio risking 1% and trading 2-5 times a week.

I just want to add that it should be a given that anyone trading this way would be using the proper money management rules such as only risking 1% per trade (of course i realise that your win/loss ratio would be a large part of this as well).
  • #2
  • Aug 29, 2010 5:34pm Aug 29, 2010 5:34pm
So no one is trading this way currently or has any views on whether this is a practical way to trade...
  • #3
  • Aug 29, 2010 5:44pm Aug 29, 2010 5:44pm
Why would you limit your profits ?
Measure twice, cut once
  • #4
  • Edited 6:35pm Aug 29, 2010 6:18pm | Edited 6:35pm
Thanks for the reply.

Good question. I guess the answer would be because during my backtesting of my system it seems that this would be a good exit to make. most of the trades go at least that distance before coming back to BE and i would not allow any trade to go 1R into profit without moving to BE.

The other reason is because it makes exits very simple. It allow me to havee a very simple exit strategy which only involves a TP at 1/1 and a few other rules which allow me to move to BE under certain circumstances.

I found that exits were one of the hardest things to do in trading in this makes me more confident that i can make profit by consistently taking profit.

Your thoughts on that logic aediaz1 (or anyone else) would be appreciated.
  • #5
  • Aug 29, 2010 9:36pm Aug 29, 2010 9:36pm
Quoting Majestic12
My method of trading involves always taking profit at 1R accept for rare occasions (1 in 10) where i may stay in the market longer if there are very good reasons to. Even then i would always scale out and take profit fairly soon.
But for the sake of this thread lets just assume i always take profit at 1R. So its basically a win or lose system but there a a few situations where i will move to BE as well but that is irrelevant here.

I would like to know if any long term profitable traders use a system where they always or mostly take profit at...

Well assuming your average dollar win and average dollar loss are about the same, with a win % of 70, you have a really nice positive expectancy going. I'd suggest you continue what you're doing.
"The markets are the greatest chess match ever played."
  • #6
  • Aug 29, 2010 9:52pm Aug 29, 2010 9:52pm
Hi

- Well if your trading method is generating for instance 60% or 70% winnings, then with RR 1:1, you will be laughing to collect your pay cheque every now and then. Don't you think so? IMO.

- If a set up is "good," RR 1:2 has been the practice for many good traders as I have read many articles from the Net and FF. My 2 cents opinion.

- Suggestion: You can test RR 1:1 vs 1:2 and you will then choose a favorable result for your MM?

p.s. English is not my main language. Sorry.

Cheers
  • #7
  • Aug 30, 2010 6:57am Aug 30, 2010 6:57am
Quoting Tradester
Well assuming your average dollar win and average dollar loss are about the same, with a win % of 70, you have a really nice positive expectancy going. I'd suggest you continue what you're doing.
Thanks tradester. Thats also the way it looks to me but something at the back of my mind tells me there may be potential pitfalls by trading this way . The main reason is that i don't tend to read about many traders who do well trading in a similar way (by taking profits quickly) and we all know the mantra that is so common in trading - 'cut your losses and let profits run'.
  • #8
  • Aug 30, 2010 7:04am Aug 30, 2010 7:04am
Quoting tradpat
Hi

- If a set up is "good," RR 1:2 has been the practice for many good traders as I have read many articles from the Net and FF. My 2 cents opinion.

Cheers
Thanks Tradpat.

I to have read lots of things with these kinds of statements but i have learned not to trust stuff i read that make such general assumptions as there usually turn out to be reasonable exceptions or just plain misguided.
  • #9
  • Aug 30, 2010 1:11pm Aug 30, 2010 1:11pm
So nobody actually trades this way or something similar? it seems to take a lot of stress away from making an exit for me and that helps my trading. This way i can concentrate on getting really good entries that have a high probability of reaching my set target.
  • #10
  • Aug 30, 2010 1:28pm Aug 30, 2010 1:28pm
I let my trades run. I put no TP at all, only stoploss.
I think using 1:1 Risk:Reward is not bad, but if you are riding the trend it is going to limit your wins considerably.
  • #11
  • Aug 30, 2010 1:55pm Aug 30, 2010 1:55pm
R/R has been discussed here many many times. Everyone handles it differently and for different reasons based on their trading style and psychology. And no one is right or wrong if it works for them. I think people don't want to rehash everything over and over again. It boils down to if it works for you...do it.
  • #12
  • Edited 4:05pm Aug 30, 2010 2:53pm | Edited 4:05pm
Quoting Majestic12
Thanks for the reply.

Good question. I guess the answer would be because during my backtesting of my system it seems that this would be a good exit to make. most of the trades go at least that distance before coming back to BE and i would not allow any trade to go 1R into profit without moving to BE.

The other reason is because it makes exits very simple. It allow me to havee a very simple exit strategy which only involves a TP at 1/1 and a few other rules which allow me to move to BE under certain circumstances.

I found that exits were...
Exits is probably the hardest part for any trader. Its very easy to open a position but closing it, doesn't matter if its profit/loss, turn out to be quite a challenge.

My suggestion would be to use something more dynamic and technical (if you don't trade without charts of course) to exit with, not some simple (random) number with no meaning to real market-conditions. Same story goes with standardized stop loss like i.e 50 pips BTW.

So if we add something we know about the market to help us determine an possible exit, we know that the market forms its daily range which can be calculated in advance. To make the statistic useful for current market-condition/volatility, I use 30 days back to generate an average range based on 30 intradays movements (high,low).

Using usd/cad as an example whereas its 30 days average range = 109 pips, I use 80% of that average range as intra-day target. In many cases, based on my experience, price tends to slow down when it hits its avg range, yet there are always exceptions. This same technique can be applied for weekly/monthly and yearly time-frame too.

The advantages is that you have a 100% mechanical approach towards your exits. When you plan your trade in advance, which you of course do, you could simply put you TP at the pre-calculated level without any emotion.

The obvious disadvantages would be that you miss some grand moves if you apply this exit-strategy every time but if we pull up a standard deviation-model, we know how far out those moves are in the model. If you're hardcore, you could always target weekly or monthly average as targets if you believe there is more potential profits to squish out of your trade.

Here is an example how I used this exit-strategy today on usd/cad;
Attached Image (click to enlarge)
Click to Enlarge Name: Chart_USD_CAD_10 Mins_HNS.jpg Size: 67 KB
Measure twice, cut once
  • #13
  • Aug 30, 2010 4:53pm Aug 30, 2010 4:53pm
As has been said, everyone trades differently so I'll add a bit from both sides to help make your own decisions.

You could say that you shouldn't be greedy and having a set TP at 1:1 gives you a simple exit strategy

On the other hand, you could say you should be exiting when there is a valid reason to exit rather than basically letting a calculator decide when to exit. I personally believe the 2nd way of looking at it more as if you are exiting a long trade, you are effectively saying that price is no going to go down and you are effectively taking a short position
The art of being wise is knowing what to overlook
  • #14
  • Sep 1, 2010 7:58am Sep 1, 2010 7:58am
Thanks for the interesting replies guys. Great ideas there aediaz. I read about using average range before for exits. i think i will stick to the 1/1 for now as it seems to give the best results for me when i am trading shorter timeframes.
However i will try and base my exit more around areas of S+R and try and get a bit more than 1/1 whenever i can see some space for price. i guess i just like the comfort of not having to call that zone i a know i would not like it if a didn't take profit at 1/1 and the trade went against me. Thanks again.
  • #15
  • Sep 1, 2010 9:23am Sep 1, 2010 9:23am
An advantage of 1:1 is that it keeps the drawdown to a minimum and the trader can risk more on a trade than one who expects 1:2 or 1:3.
This of course applies only when the stop is far enough and it's going to be hit only if the market really changes its direction. For a scalper it is suicidal, as the spread will decrease very fast his profits and any edge would lose its effectiveness.
Also, 1:1 is a great idea to measure the edge and the expectancy of a system, be it discretionary or mechanical. If less than 50% of all your trades are winning when TP = SL, the system can't be profitable. It doesn't matter what kind of exit one intends to use, at 1:1 the system must show a profit. If not, it is worse than random entries.
  • #16
  • Sep 1, 2010 10:05am Sep 1, 2010 10:05am
Quoting aediaz1
Exits is probably the hardest part for any trader. Its very easy to open a position but closing it, doesn't matter if its profit/loss, turn out to be quite a challenge.

My suggestion would be to use something more dynamic and technical (if you don't trade without charts of course) to exit with, not some simple (random) number with no meaning to real market-conditions. Same story goes with standardized stop loss like i.e 50 pips BTW.

So if we add something we know about the market to help us determine an possible exit, we know that the market...
Interested in your ideas here. Can I ask:

1. Do you use the same 80% for S/L?
2. Do you trade dailies, if so, how successful is this method?

All the best,
"Fail to prepare, prepare to fail."
  • #17
  • Edited 10:45am Sep 1, 2010 10:18am | Edited 10:45am
Quoting Sauron
An advantage of 1:1 is that it keeps the drawdown to a minimum and the trader can risk more on a trade than one who expects 1:2 or 1:3.
You don't adjust your position seize according to your potential profit, you adjust it to your SL amount. Thats why I don't understand what you mean with that statement ?

Quoting packhorse
Interested in your ideas here. Can I ask:

1. Do you use the same 80% for S/L?
2. Do you trade dailies, if so, how successful is this method?

All the best,
1. No. My SL rarely exceed 40 pips regardless of the TF.
2. I suggest you do your own research on this field. My definition of success doesn't help you much I'm afraid.
Measure twice, cut once
  • #18
  • Sep 1, 2010 10:46am Sep 1, 2010 10:46am
If u have 70% at least winners this will
do the job for u. i always trail my stop as well so if i am stopped most of the time the overall ratio will be 1.5:1 or 2:1 in my favor.
i take 10 ticks from the market within max 15m after the trade is open;and i let myself do it only once per day only in the first 1.5 h. after london opens.
take your 1:1 profit and go do something else instead of sit infront of the screen and wait for the price to reach more than that.
then once u are ok , increase size; u do not need more than that.u do not need to sit hours infront of screen and just wait and hope when price retraces to your entry after reaching your 1:1.
  • #19
  • Sep 2, 2010 12:23am Sep 2, 2010 12:23am
Quoting aediaz1
You don't adjust your position seize according to your potential profit, you adjust it to your SL amount. Thats why I don't understand what you mean with that statement ?
I adjust it according to SL but if I'm going for 1:3 or more I know that I'm going to lose more trades trades than at 1:1. Therefore, my drawdown will be higher which would make me automatically to risk less. If I risk 3% for 1:1 I think I can't risk more than 1.5% for 1:3.
  • #20
  • Sep 5, 2010 7:04am Sep 5, 2010 7:04am
Hi Majestic12,
i'm currently trying to develop a system that has a 1:1 RR ratio. I found out that the key to making profit with such system is to enter high probability winning trades. This means that, on the long run, one can achieve the 70% kind of win level. I'm looking into HAMMERS and INVERTED HAMMERS for possible entry signals for now. I'd be glad if you can shed some light on your strategy.

Marshal
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