What is your risk reward ratio? | Forex Factory

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What is your risk reward ratio?

  • #1
  • First Post: Edited 9:53am Feb 2, 2012 6:52am | Edited 9:53am
No doubt many traders will say having a good risk reward ratio very important without hesitation. Professional traders recommend at least 1:3 risk reward ratio. However, how many traders follow this rule consistently. Not the scalpers and probably a good number of day traders as well.

Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in your desired direction. It brings uncertainty whether one should take profit or let it run. It is one of the market behaviors that makes trading difficult. Getting into a good trade itself is already not easy. Even if you have a position with running profit, it is difficult to decide when to take profit.

Recently I am seeing a problem with taking profits as little as 20 pips. Why? Because if that trade turns out to be bad (my stop loss is usually about 20 pips), you need a winning trade just to break even. Considering how risky currency trading is, it is silly to make 2 trades and make nothing out of that, considering you have just exposed yourself to two potential losses. It is just as easy to incur losses from several losing trades, making it exceedingly hard to even make back the money that you lost.

Discuss your personal view of risk reward ratio as a trader. You don't have to agree with the views I have stated above.
'For the market to work, it needs people who think that they can beat it.'
  • #2
  • Feb 2, 2012 8:22am Feb 2, 2012 8:22am
You have described the problem very well. Price moves in your favour, now what? Do i move the stop, what if it comes back? All these question start to pop up. What i have noticed is the market will most of the time retrace after the initial move to pick off orders before moving on further. So if you move your stop, you are exposed. How many times have you moved your stop, the market comes back takes out your stop and then continues in the intended direction. If you want to capture the big moves you have to let the market retrace on you and after it puts in the first pullback swing move move your stop behind that pullback, not before.

Quoting AlastorFate
No doubt many traders will say having a good risk reward ratio very important without hesitation. Professional traders recommend at least 1:3 risk reward ratio. However, how many traders follow this rule consistently. Not the scalpers and probably a good number of day traders as well.

Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in a your desired direction. It brings uncertainty whether one should take profit...
  • #3
  • Feb 2, 2012 8:37am Feb 2, 2012 8:37am
3 to 1 is the minimum unless you are a scalper. Set your target at 3 times your risk, when it gets to 2 times your risk move your stops to Break Even, if price gets close to target 3 and reverses take yourself out at target 2. The idea is that if the market throws money on the table, GRAB it.
  • #4
  • Feb 2, 2012 9:04am Feb 2, 2012 9:04am
Quoting johnvr
3 to 1 is the minimum unless you are a scalper.
Why?! http://www.clicksmilies.com/s1106/fr...smiley-005.gif

You wouldn't like a system in which the risk-to-reward ratio is 1:1 and the trades entered win 75% of the time and lose 25% of the time? I do.

You wouldn't like a system in which the trades win 50% of the time and lose 50% of the time and the risk-to-reward ratio is 1:1.75? I do.

I find them both very profitable and tradable over the long term.

Sorry, I'm not trying to be impolite or to criticise, but over and over and over again in forums, I see people producing these blanket statements about risk-to-reward ratios, without taking into the account the strike-rates - and they're just not valid, that way.

Quoting AlastorFate
Professional traders recommend at least 1:3 risk reward ratio.
Sorry, but this simply isn't so. That may be what some home-traders who post in forums say, but nobody on the trading floor of Goldman Sachs thinks that. Not the managers, not the traders, not the cleaners - nobody.
  • #5
  • Feb 2, 2012 9:11am Feb 2, 2012 9:11am
Quoting AlastorFate
No doubt many traders will say having a good risk reward ratio very important without hesitation. Professional traders recommend at least 1:3 risk reward ratio. However, how many traders follow this rule consistently. Not the scalpers and probably a good number of day traders as well.

Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in a your desired direction. It brings uncertainty whether one should take profit...
true bro... thats why u hear people talk about R/r so much. i try i really do try to trade 2:1 and above. 1:1 sometimes do occur on early exits ... but in the end i really push myself to look for 2:1 setups. your equity curve would look much better with 2:1 and above i think. 1:1 ure either a little profitable - a little losing - or breakeven .

my view is that to be a succesful conssitently profitable u gotta trade over 2:1 and have an edge of at least 50% profitability. it really sounds simple - but its not as most sayings go

way to go on ur discusssion alastor
Have I got something on my face, SOLDIER?
  • #6
  • Feb 2, 2012 9:16am Feb 2, 2012 9:16am
Whatever you feel is comfortable for you, go for it. I say 3 to 1, if it gets close and reverses then 2 to 1, or lose 1. Works for me. We are all giving opinions and we are not trying to convince anyone that what we do is the know all and be all, so dont get hot under the collar because what we do does not fit in with what you do... Strategies are different, stops are different, take profits are different, we are different, capich!!
  • #7
  • Feb 2, 2012 11:27am Feb 2, 2012 11:27am
Most of my trades are slightly worse than 1:1. I'm a scalper and take around 4-5 trades per day on average with around a 70% success rate. When you enter the market with a 1:1 RR, you hve a higher chance of hitting your target than if you enter with a 1:2 RR because price can more easily move 10 pips in your favour than 20. As someone has pointed out already, strike rate is very important to include in the discussion when discussing risk reward ratios. Occasionally I will take a longer term position (a few hours) if a high probability setup forms with a 1:3 or greater RR. Those trades don't work out anywhere near as often as my scalps but with a better RR it can still work out. However, as a full time trader I much prefer to be busy taking trades every day than to sit at charts for hours or even on end just waiting for a setup to form. I can't trade that way. I get tired and lose concentration. So I scalp instead, taking a handful of trades most days (I trade an average of 15 days per month, avoiding Bank Holidays and Non Farm) with a 1:1 RR but higher success rate.

It's each to their own, really. I knew a trader who exclusively trades the 4hr charts. I don't know if he still trades or not but when I knew him he only took 1-2 trades per week on a really good week. Sometimes only 1-2 per month. It seemed to work for him but I can't do that. I can't take a loss and know that it could be weeks before I get the chance to make that loss back and make some profit. And what about market exposure? If you're in a trade for a week the chances of getting into trouble if there were a huge natural disaster or some other factor that could crash the markets, is MUCH higher than if you dip in and out of the market for a few minutes a few times per day.
  • #8
  • Feb 2, 2012 11:58am Feb 2, 2012 11:58am
i am not a friend of fixed R/R ratios.. i let it decide by my technicals, means first i look where i can set a safe SL and where i can set a safe TP... what is fixed is the amount of money i risk which is usually max. 1 to 1.5% of my account balance.. i this way i get a R/R of between 1:1 to 1:3 ... if R/R is under 1:1 my rules say not to take the trade...but sticking to your own rules is the hardest part in trading
  • #9
  • Feb 2, 2012 12:23pm Feb 2, 2012 12:23pm
Quoting AlastorFate
Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in your desired direction. It brings uncertainty whether one should take profit or let it run. It is one of the market behaviors that makes trading difficult.
The only advice I could tend here is that if you are consistently correct in forecasting the near term direction but are stopped out often before the move happens, you absolutely positively need to re-examine your entries/entry method. Why and where are you stopped out? Perhaps focus on making that the trade instead, which would increase your hit rate, keep your risk consistent, and increase your potential reward.

Look at where you would normally take a trade, consider where you would place your stop (presumably at a technical point of some sort, but not necessarily), and consider how the market could use that setup to its advantage against you.

You are definitely not alone-- the whole "right on the direction, wrong on the timing-- got stopped out" phenomenon is something many, many traders have experienced and can be a serious, stubborn stumbling block that is difficult to overcome. Changing your r:r is not going to fix the issue-- if you allow for a wider stop, you may win more trades but your losing trades will be larger. Taking profit earlier will increase your win rate but will make your winners smaller.
  • #10
  • Feb 2, 2012 12:42pm Feb 2, 2012 12:42pm
Quoting Xela
Why?! http://www.clicksmilies.com/s1106/fr...smiley-005.gif

You wouldn't like a system in which the risk-to-reward ratio is 1:1 and the trades entered win 75% of the time and lose 25% of the time? I do.

You wouldn't like a system in which the trades win 50% of the time and lose 50% of the time and the risk-to-reward ratio is 1:1.75? I do.

I find them both very profitable and tradable over the long term.

Sorry, I'm not trying to be impolite or to criticise, but over and over and over again in forums, I see people...
this post is everything I was gonna say.. R:R is a bunch of crap.. get a fucking profit.. consistantly..

in todays market you think its easy to get 1 stoploss to 3 take profit?

1:3 is a bitch.. EZ crisis does not make 1:3 easy.. the stupid 1:3 R:R.. its all crap.. any second they will have a deal or more BS about the end of the world and shits everywhich way

you have a very limited window in this game to grab a profits.. and not every day is same as last.. so fixed R:R is just another feature of the 95% of idiots teaching forex
  • #11
  • Feb 2, 2012 1:14pm Feb 2, 2012 1:14pm
I use risk to reward ratio of 1:2.

I like it for various reasons and it works well for me. I always stick to it no matter how the market is, because in trading with TP and SL, the result is always the same no matter what you do: sometimes we profit, sometimes you lose. So I stick to the mechanism that I like and find comfortable with =)

Btw Newyear498, check out my cool sig
The tone of your words reflects the quality and result of your trading ;-)
  • #12
  • Feb 2, 2012 1:19pm Feb 2, 2012 1:19pm
Quoting isaacyassar
I use risk to reward ratio of 1:2.

I like it for various reasons and it works well for me. I always stick to it no matter how the market is, because in trading with TP and SL, the result is always the same no matter what you do: sometimes we profit, sometimes you lose. So I stick to the mechanism that I like and find comfortable with =)

Btw Newyear498, check out my cool sig
go check out the consistency of your sig with the entire systems thread.. matter fact tone of my old posts used to be all positive hanky dory when I was sharing my BS systems trying to be cool

and I must be a really bad trader.. you should hear me when I'm fucking ROFL
  • #13
  • Feb 2, 2012 1:20pm Feb 2, 2012 1:20pm
Quoting newyear498
go check out the consistency of your sig with the entire systems thread.. matter fact tone of my old posts used to be all positive hanky dory when I was sharing my BS systems trying to be cool
we cross paths again man

remember doctortyby's thread LOL good times .. hows u doing newyear?
Have I got something on my face, SOLDIER?
  • #14
  • Feb 2, 2012 1:21pm Feb 2, 2012 1:21pm
Quoting newyear498
this post is everything I was gonna say.. R:R is a bunch of crap.. get a fucking profit.. consistantly..

in todays market you think its easy to get 1 stoploss to 3 take profit?

1:3 is a bitch.. EZ crisis does not make 1:3 easy.. the stupid 1:3 R:R.. its all crap.. any second they will have a deal or more BS about the end of the world and shits everywhich way

you have a very limited window in this game to grab a profits.. and not every day is same as last.. so fixed R:R is just another feature of the 95% of idiots teaching forex
I agree for the most part. With the charts jumping around all over the place in this unstable economic environment, it's hard to hit those 3 to 1 profit targets. But that doesn't mean a fixed profit target is for idiots. I use a fixed 1:1 RR and only change the target if the markret gives me signs to do so, which isn't often. But yes, good luck being accurate enough to make a 1:3 RR work enough times on the euro at the moment to make good money from it. It's hard time for that kind of RR on that currency pair, in my opinion.
  • #15
  • Feb 2, 2012 1:28pm Feb 2, 2012 1:28pm
Quoting bumapatria
we cross paths again man

remember doctortyby's thread LOL good times .. hows u doing newyear?
its been so long I don't remeber what happen did quick search but still not sure what happen?

im fine and you?
  • #16
  • Feb 2, 2012 1:30pm Feb 2, 2012 1:30pm
Quoting Roofx
I agree for the most part. With the charts jumping around all over the place in this unstable economic environment, it's hard to hit those 3 to 1 profit targets. But that doesn't mean a fixed profit target is for idiots. I use a fixed 1:1 RR and only change the target if the markret gives me signs to do so, which isn't often. But yes, good luck being accurate enough to make a 1:3 RR work enough times on the euro at the moment to make good money from it. It's hard time for that kind of RR on that currency pair, in my opinion.
yeah dont take me wrong I use a fixed sl/tp.. but you can switch it up and around do whatever.. adapt to your opportunity or problem
  • #17
  • Feb 2, 2012 2:22pm Feb 2, 2012 2:22pm
Quoting newyear498
yeah dont take me wrong I use a fixed sl/tp.. but you can switch it up and around do whatever.. adapt to your opportunity or problem
Yes exactly! Adapting to the market conditions can be the difference between a losing day and a winning day.
  • #18
  • Feb 6, 2012 7:31am Feb 6, 2012 7:31am
I try to keep my risks low with signal providers and to this day i've been rewarded , my investment is growing slowly but steady.
  • #19
  • Feb 7, 2012 12:56am Feb 7, 2012 12:56am
i use 2:1 reward risk.
Given that the average LO breakout is around 58 pips on EU it seems logical to have my tp at around 50 pips with a sl of 1 atr in 1hr time frame which is usualy around 25.works out great.
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #20
  • Edited 9:49am Feb 7, 2012 9:39am | Edited 9:49am
to me, R/R is heavily depended on the TF. the higher the TF the higher the R/R. i choose the 4h TF because it gives me higher R/R compared to 1h TF. i dont take trade whose R/R is below 1:3. to be frank, i know i am not going to be right all the time, so i only take trades that will take little from me when i am wrong and give me PLENTY when i am right. moreover...just my way
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