It's been a while since my last post but I'm still here. Calculating proper R:R seems to be a topic among traders but you have to do it properly if it's going to have any meaning. THIS ASSUMES CLOSING POSITIONS ALONG THE WAY. Since we trade from 1st S to 1st R let's use that as the example:
Distance between S and R is 650 pips. Let's say 1.5350 to 1.6000.
If you witness PA to go long at 1.5000 you would think your R:R is 1:3ish
(150 pips SL and 500 pips potential profit).
This is not correct and you need to do the math to better determine your actual R:R.
Here's why and how:
If you close 1 position at 100 pips then that negates your R:R number because the remaining 2 are no longer carrying the same weight. So, here's how you calculate it:
3 positions are each responsible for their own pips.
If all 3 positions are closed out by the SL then that's 150 pips x 3 or 450 pips.
If you make a profit here how it actually works out.
1st position closed out at 100 pips and the other 2 get stopped out at BE, this is a 1: .2 return (100pips / 450 pips)
1st position closed out at 100 pips, 2nd position makes it to 1.6000 and 3rd position get's close out at BE. This is a 1:1.3 return (100 pips + 500 pips/450 pips = 1.3)
The last position is the game changer and is what we are aiming for on this thread. Many of your trades will get stopped out with only 100 pips and the other 2 at BE. This is good! Much better than ZERO pips.
So, don't focus so much on actual R:R because that isn't the focus here on this thread. Strat's method aims for catching the trend and trading from 1st S to 1st R is the training ground. I'll repeat that...training ground.
I'll use a recent USDCHF trade I did as the example: (please note that pip count is for calculation purposes, not to brag)
I went short just below 1.1400 and took my 100 pips below that. I closed my 2nd position at 1.000ish and during the consolidation around 1.0400 I chickened out and closed the last one.
Total pips: 1600
Position 1 - 100 pips
Position 2 - 425 pips
Position 3 - 975 pips
The SL on this trade was 200 pips x 3 positions or 600 pips
Actual R:R was 1600/600 = 1:2.6
Here's the kicker. If I had played by the LH and LL rule I would still be in the trade! Strat's method also shows us how to add on at each S/R in a trend so the actual R:R would have been much greater if I had done so.
In short, don't focus so much on R:R while learning to trade Strat's method. It's all about proper PA and trading from 1st S to 1st R.
Distance between S and R is 650 pips. Let's say 1.5350 to 1.6000.
If you witness PA to go long at 1.5000 you would think your R:R is 1:3ish
(150 pips SL and 500 pips potential profit).
This is not correct and you need to do the math to better determine your actual R:R.
Here's why and how:
If you close 1 position at 100 pips then that negates your R:R number because the remaining 2 are no longer carrying the same weight. So, here's how you calculate it:
3 positions are each responsible for their own pips.
If all 3 positions are closed out by the SL then that's 150 pips x 3 or 450 pips.
If you make a profit here how it actually works out.
1st position closed out at 100 pips and the other 2 get stopped out at BE, this is a 1: .2 return (100pips / 450 pips)
1st position closed out at 100 pips, 2nd position makes it to 1.6000 and 3rd position get's close out at BE. This is a 1:1.3 return (100 pips + 500 pips/450 pips = 1.3)
The last position is the game changer and is what we are aiming for on this thread. Many of your trades will get stopped out with only 100 pips and the other 2 at BE. This is good! Much better than ZERO pips.
So, don't focus so much on actual R:R because that isn't the focus here on this thread. Strat's method aims for catching the trend and trading from 1st S to 1st R is the training ground. I'll repeat that...training ground.
I'll use a recent USDCHF trade I did as the example: (please note that pip count is for calculation purposes, not to brag)
I went short just below 1.1400 and took my 100 pips below that. I closed my 2nd position at 1.000ish and during the consolidation around 1.0400 I chickened out and closed the last one.
Total pips: 1600
Position 1 - 100 pips
Position 2 - 425 pips
Position 3 - 975 pips
The SL on this trade was 200 pips x 3 positions or 600 pips
Actual R:R was 1600/600 = 1:2.6
Here's the kicker. If I had played by the LH and LL rule I would still be in the trade! Strat's method also shows us how to add on at each S/R in a trend so the actual R:R would have been much greater if I had done so.
In short, don't focus so much on R:R while learning to trade Strat's method. It's all about proper PA and trading from 1st S to 1st R.
Attached Image (click to enlarge)
