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1:1 Risk Reward Ratio - Why it just makes sense

  • #41
  • Jun 8, 2012 9:17am Jun 8, 2012 9:17am
Quoting darko2010
and manage to keep my winning positions for several days
Clearly, today is not one of these days...
  • #42
  • Jun 8, 2012 9:18am Jun 8, 2012 9:18am
Quoting ha-pattern
It's refreshing that someone puts the psychological game first. Only, in trading, it's difficult to pin down percentages in order to apply "probability games and variance". There is no set number of cards and thus hands -- It's wide open on the possibilities of interpretation.

You could have a set method and thus rank different uses of it, but even there, you'd have to filter through different types and time frames of charts in an exhaustive study and then make precise rules to delimit how to use the method. Being only a highly precise...
Yes, you're right and only with games like for example roulette we know what our edge is, or better yet, the house's edge. In poker you can determine that on a hand by hand basis and over a very large sample size. With trading that edge can not be determined per individual trade but only with a large enough sample size. I don't see any difference in the two last examples. Markets are always changing and players are always changing too. So i must find that small edge i think i need to become successful and do that with a trading method that takes away as many variables as I possible can.

I hope I understood your point correctly and that mine comes across clearly too. Sometimes things get lost in translation.

How can I get a larger version of that picture in your member profile? I'm curious what it's about.
It's my price or no price at all!
  • #43
  • Jun 8, 2012 9:28am Jun 8, 2012 9:28am
Quoting darko2010
At the end of the day, the difference between our approaches is less about R:R but about personal psychology and respective comfort zones.
If you had to give a percentage to the importance of your methode/system and your personal psychology and respective comfort zone.

Really only interested in your opinion.

Quoting darko2010
Clearly, today is not one of these days...
Bad day at the office?
It's my price or no price at all!
  • #44
  • Jun 8, 2012 9:35am Jun 8, 2012 9:35am
Quoting 4extool
Yes, you're right and only with games like for example roulette we know what our edge is, or better yet, the house's edge. In poker you can determine that on a hand by hand basis and over a very large sample size. With trading that edge can not be determined per individual trade but only with a large enough sample size. I don't see any difference in the two last examples. Markets are always changing and players are always changing too. So i must find that small edge i think i need to become successful and do that with a trading method that takes...
Yeah, okay, your answer also helps me understand how to add probability better; and, this is what I meant, restated:
Each drawing device, say, a symmetric triangle, has so much probability (from a large, diverse sample size, which one can begin at here) of working, depending on its surroundings and insides. Take a bunch of such patterns and figure their juxtaposition in a chart area to get an overall picture of the chance of any one trade.

My profile's picture is of the "cycle of market emotions", which I occasionally use in an abbreviated form I added a few things to. It's in google and it and other models of emotion are discussed in this thread.

Best of luck from your studies.
  • #45
  • Jun 8, 2012 9:37am Jun 8, 2012 9:37am
Quoting 4extool
If you had to give a percentage to the importance of your methode/system and your personal psychology and respective comfort zone.

Really only interested in your opinion.

Bad day at the office?
Hard to distinguish between system and psychology. Once you have a system you are 100% comfortable with (i.e. where you are psychologically ready to take losses given that you know you have a positive expectancy), there should be no room for psychology whatsoever.

Not a bad day, just a rough market which clearly lacks direction... I'll live
  • #46
  • Jun 8, 2012 10:01am Jun 8, 2012 10:01am
Ha-pattern:

Tnx, this is clearly another reason I'm happy this thread came back to life.

I'm definitely gonna read up on the coils. I'm sure it can't hurt to have some better understanding of that concept. The website you linked to seems to offer a lot of information. The guy is funny too.

This cycle of market emotions made me laugh. So recognizable :-)

Darko, I got ya. Happy trading
It's my price or no price at all!
  • #47
  • Edited 11:21am Jun 8, 2012 10:40am | Edited 11:21am
I used to trade 1:2 or 1:3 with about a 38% win rate. It worked and made sense to be making more on the winners for obvious reasons. However i have found I have been able to make much more money at 1:1 with a 62% win rate. The reason for this is because the drawdown is less because the win rate is higher. Because of less draw down I can risk more. I went from risking 0.25% per trade to accommodate 10 or more consecutive losers to risking a full 1% per trade.

I have doubled my profit this way

check the stats for yourself, The first image is a copy of my stats trading at 1:2 and gives 4 months of data from last year. The second shows the new risk/reward at 1:1. Its early days but at this point I would have to say
Roofx is 100% correct
Attached Image(s) (click to enlarge)
Click to Enlarge Name: 2011-12-30_1437.png Size: 132 KB
Click to Enlarge Name: 2012-05-19_1805.jpg Size: 130 KB
BTC Return This Year: na
  • #48
  • Edited 10:21pm Jun 8, 2012 10:52am | Edited 10:21pm
Quoting M.A.C.Doug
i have found I have been able to make much more money at 1:1 with a 62% win rate. The reason for this is because the drawdown is less because the win rate is higher. Because of less draw down I can risk more.
Precisely
Time hides Nothing
  • #49
  • Jun 8, 2012 10:53am Jun 8, 2012 10:53am
Quoting JamesBranson
Interesting discussion, I think (but am not certain!) the answer is to add systems (and I mean thoroughly tested systems not just grabbing a new one of the forums that seem to be working) First you need to have the metrics on your current system going back 5-10 years (if you haven't been trading it that long then manually backtest trade by trade....secondly the new system should aim to complement the old system ( when you put the equity curves together for old and new the curve should smoother (not necessarily bigger!)...the system I have been trading...
100% agree and that's exactly the sort of thing I do too. I have 2 systems too precisely for this reason - smoothing out the equity curve. And in my opinion, its probably the best way of dealing with drawdown. You cant avoid it but you can offset some of it by having more than one system.
  • #50
  • Jun 8, 2012 10:59am Jun 8, 2012 10:59am
Quoting 4extool

And this is the point. When I make 20 pips on that trade, I'm thinking "good job," another person would think "damn, missed out on a lot of pips."
And yet another person might think they made a wise move by staying in the trade and exploiting the market for what it has to offer, why cut profits (short) without the market giving a valid reason?


Quoting 4extool

Now for the system, I strongly believe that it's secondary by far.
So do I, and that's why I believe the failure stats are so high, the vast majority think that finding a tool to predict direction accurately is key to profitability.

I really fail to see the value of statistically analysing a systems historical performance when no two trades are ever the same. If someone needs those numbers as a crutch to give them confidence to trade then they probably need to review the way they approach trading.
  • #51
  • Jun 8, 2012 11:07am Jun 8, 2012 11:07am
Impressive Doug.
It's my price or no price at all!
  • #52
  • Jun 8, 2012 11:27am Jun 8, 2012 11:27am
Quoting pipmutt


I really fail to see the value of statistically analysing a systems historical performance when no two trades are ever the same.
As difficult as it may be, I'll agree with pipmutt here.

Further, some of the (other) replies are just too "scientifically advanced". Trading doesn't have to be rocket science.

"Everything should be as simple as possible but no simpler" is a quote by the "original" rocket scientist. To me, that implies developing your own system/method of trading and simply perfecting it as time goes by. If your method is too rigid then you may fail to get out of a trade when it turns against you.

Anyway, it's Friday and I won't elaborate further

'cuz I don't want to.

Happy Weekend.
When the Joker is in the deck.. fear not and play it well
  • #53
  • Jun 8, 2012 11:36am Jun 8, 2012 11:36am
Quoting Slim Buffett
'cuz I don't want to.
Happy Weekend.
Geez, I just wanted to ask why not

Enjoy your weekend.
It's my price or no price at all!
  • #54
  • Jun 8, 2012 1:13pm Jun 8, 2012 1:13pm
Quoting M.A.C.Doug
I used to trade 1:2 or 1:3 with about a 38% win rate. It worked and made sense to be making more on the winners for obvious reasons. However i have found I have been able to make much more money at 1:1 with a 62% win rate. The reason for this is because the drawdown is less because the win rate is higher. Because of less draw down I can risk more. I went from risking 0.25% per trade to accommodate 10 or more consecutive losers to risking a full 1% per trade.
I have doubled my profit this way
Hey MacDoug, those figures are looking good!
I should incorporate something like this into the exit strategies that I'm working on. I stopped using RR completely after I tried following the mantra of 1:2 or 1:3 back in the day and it produced so many losers that it wasn't psychologically viable, even if I managed to stay marginally in profit. In the end I decided to manage the risk and let the rewards take care of themselves and that worked ok for a while, but I need something a bit more sophisticated than that now. Like you said before, the newbie days are over - no more excuses!
  • #55
  • Jun 8, 2012 7:12pm Jun 8, 2012 7:12pm
Quoting M.A.C.Doug
Because of less draw down I can risk more. I went from risking 0.25% per trade to accommodate 10 or more consecutive losers to risking a full 1% per trade.
That's very helpful. How far can you follow this line of logic? What happens if you trade 1:0.5 and increase your win rate even further?

One thing is certain. Once I'm in profit and close the position, I have that profit. If I wait for more, I may well get less. In fact, the more I hope for, the less my chance of getting it. At every point I ask myself, "Is the chance of getting more out of this trade greater than 50%?" If I've no good reason for thinking it is, I'm basically tossing a coin at that decision point, and so I exit.
  • #56
  • Edited 9:29pm Jun 8, 2012 9:11pm | Edited 9:29pm
check the stats for yourself, The first image is a copy of my stats trading at 1:2 and gives 4 months of data from last year. The second shows the new risk/reward at 1:1. Its early days but at this point I would have to say
Roofx is 100% correct[/quote]

I definitely agree as well. Also the compounding process is more effective this way as there are more winners to build on. Every strategy i use in both the stock market and forex is based on an even R:R. Smart stop placement with a reasonable take profit. First I always look at how much my entries are worth 70% of the time and strategize a stop loss below a support level or above a resistance level with an even risk reward. I always also trade with the direction of the simple moving average. I try not to buck the trend as this is when my win ratio is effected.
My trades are 100% profitable 65% of the time!
  • #57
  • Jun 8, 2012 9:21pm Jun 8, 2012 9:21pm
Quoting jimmyjames79
Roofx is 100% correct
[/quote]

100% correct 'ay? That's a bold statement.

And about that image... ??
When the Joker is in the deck.. fear not and play it well
  • #58
  • Jun 8, 2012 9:36pm Jun 8, 2012 9:36pm
100% correct 'ay? That's a bold statement.

And about that image... ??[/quote]

Yeah that post didn't make sense did it. I copied a quote and submitted it before I replied. Just agreeing that managing your trades around an even R:R is easier not better or worse then a different R:R.
My trades are 100% profitable 65% of the time!
  • #59
  • Jun 8, 2012 9:47pm Jun 8, 2012 9:47pm
Quoting jimmyjames79
100% correct 'ay? That's a bold statement.

And about that image... ??
Just agreeing that managing your trades around an even R:R is easier not better or worse then a different R:R.[/quote]

Like most/many forex related discussions it could be an endless argument I suppose.

Do what works for you. That's what I intend to do.
When the Joker is in the deck.. fear not and play it well
  • #60
  • Jun 8, 2012 9:51pm Jun 8, 2012 9:51pm
Quoting Slim Buffett
Just agreeing that managing your trades around an even R:R is easier not better or worse then a different R:R.
Like most/many forex related discussions it could be an endless argument I suppose.

Do what works for you. That's what I intend to do.[/quote]

Yep i understand everybody perceives trading differently. I should say easier for me!

Have a good one!
My trades are 100% profitable 65% of the time!
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