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

  • #101
  • Jun 9, 2012 9:22am Jun 9, 2012 9:22am
Quoting 4extool
I didn't call myself 4extool for nothing. This is way beyond my pay grade. :nerd:
Sorry, thinking aloud. Got a lot of junk, none of it works (yet).

The core of it (" intuition from a reason very little in the conscious mind,
to a reason one resists yet does if the answer feels difficult to take") is alternate or add-on ways of reasoning a trade, from a gut feel in a good trade to emotional resistance toward a bad trade.
Just being comprehensive, maybe overly so. Psychological extras.
  • #102
  • Edited 12:29am Jun 10, 2012 12:19am | Edited 12:29am
Quoting pipmutt
Well it seems like the conventional wisdom of century-old maxims like "cut losses short, let profits run" and "quality not quantity" has apparently been invalidated by some FF members......but in traditional forum discussion style the awkward questions and challenges receive the standard "it works for me" response! Outstanding!

People can tweak all the settings they like in an MT4 backtest to make the results look good but logic, if nothing else, should at least provide a clue about the superior productivity of letting profits run over...
Here's a little yang to your ying. In my trading style there are many opportunities. I look for entries with probable profit targets. I can careless if i leave any on the table. There's always another trade ready to pop. In retrospect i constantly recycle my trades to trades ready to pop and i take an even reward to what i was willing to risk. Reducing your profit targets allows a better win ratio which in return allows compounding to excel (relative). Also i can do this when the market is trending and consolidating with the same results without having to reduce or lengthen take profits and stops. A win ratio in the 60% or higher range a few trades a day with 2 % risk per trade what else do you need.

I perceive this to be logical and just as effective as letting your winners ride.The reason is i can rely on a good entry for an x amount of profit. Trade management is simple and a good entry with smart stop placement allows a probable profit target.

Not at all disagreeing with letting profits ride. My profits are riding just in different locations.

Really an edge to me is easy to find. I can find an edge with any reasonable risk reward. I'm sure all profitable traders can. At this stage i can careless about my edge or anyone else's . Really it's about the discipline to stick with what you know and keep your risk per trade reasonable due to risk to ruin. The powers in the numbers. And the numbers sure do grow fast if your on the right side of things. You can have the greatest edge in the world but if you can't manage your money it means nothing.

I have built this philosophy from the ground up as i'm sure you have built yours the same. So I'm not challenging your post just have a different philosophy. As long as your constantly in the money who cares how you do it.
My trades are 100% profitable 65% of the time!
  • #103
  • Jun 10, 2012 1:24am Jun 10, 2012 1:24am
Quoting jimmyjames
i can care less
Interesting how language can evolve to mean the very opposite of what's said.

Suppose you measure your desire for chocolate on a 0 to 10 scale. 0 means you don't care at all. 10 means you'd kill for it. If your desire measures 10, this means you could care less about chocolate. If it measures 0, it means you couldn't care less.

Just me being pedantic. Dropped on my head as a child, no doubt.
  • #104
  • Jun 10, 2012 1:44am Jun 10, 2012 1:44am
Quoting AllanS
Interesting how language can evolve to mean the very opposite of what's said.

Suppose you measure your desire for chocolate on a 0 to 10 scale. 0 means you don't care at all. 10 means you'd kill for it. If your desire measures 10, this means you could care less about chocolate. If it measures 0, it means you couldn't care less.

Just me being pedantic. Dropped on my head as a child, no doubt.
nice
  • #105
  • Jun 10, 2012 3:09am Jun 10, 2012 3:09am
Quoting jimmyjames79

Reducing your profit targets allows a better win ratio which in return allows compounding to excel (relative).

A win ratio in the 60% or higher range a few trades a day with 2 % risk per trade what else do you need.

I perceive this to be logical and just as effective as letting your winners ride.The reason is i can rely on a good entry for an x amount of profit.
A very reasonably presented point of view but you know I'm not going to agree....

Is trading about being right and winning a trade or is it about making as much money as you can for the risks taken?

In a market over which you have no control and which can be volatile and unpredictable you have to be right more times than you're wrong to make a profit. That places more emphasis and reliance on your predictive abilities and more importantly on the market agreeing with your view, and every new trade is new exposure to risk. There are also the issues of overhead and the risk of overtrading and chasing the market.

An alternative could be focussing on and managing something which you do have total control over, exploiting the times you are right to the max, compounding profit and reducing risk within a trade, having reduced overhead, and less probability/need of overtrading.

The option of whether to exploit one trade for all it's worth, with less risk, as opposed to taking the money and running over and over, with more risk, really is an easy and logical choice to make for me. I can't understand why anyone would purposely avoid the opportunity to take money from the market?


Quoting jimmyjames79

You can have the greatest edge in the world but if you can't manage your money it means nothing.
Manage your money....and your trade.


Quoting jimmyjames79

As long as your constantly in the money who cares how you do it.
Degrees of performance and realising one's potential I suppose, as well as the markets potential for being a cash cow. I guess it depends on what you're happy achieving from your efforts and whether 'works' is satisfying and rewarding enough.

I suspect there are some psychological reasons behind having the urge to bank profits as soon as possible and move on to another trade.....
  • #106
  • Jun 10, 2012 3:50am Jun 10, 2012 3:50am
Quoting pipmutt
I suspect there are some psychological reasons behind having the urge to bank profits as soon as possible and move on to another trade.....
And these reasons could well mean the difference between being a winning or a losing trader.

Not many people can run the 100M dash just as well as the 200m, let along the higher distances. No matter how you retrain and educate that 100m runner, he will without a shadow of a doubt never win a marathon.

Jimmy makes another very strong statement about leaving pips on the table. He seems fine with it. That's an import an trade to have when trading such R/R ratios. People who feel they lost out will probably never be able to justify trading in such a way.

Guys, I wish you happy trading. It's my birthday today "42" god help me :-) I'm on my way to the airport for a quick few days in Thailand.

All the best.
It's my price or no price at all!
  • #107
  • Jun 10, 2012 3:52am Jun 10, 2012 3:52am
You all have very interesting theories indeed But the RR factor is determined not by yout mathemetical projections or opinions but by the market conditions itself. You can't put 1 risk 2 reward ratio on a trade if the market only offers 1 risk 1 reward.
  • #108
  • Jun 10, 2012 4:01am Jun 10, 2012 4:01am
Quoting 4extool

It's my birthday today "42" god help me :-) I'm on my way to the airport for a quick few days in Thailand.
http://www.sherv.net/cm/emoticons/bi...thday-text.gif

Have a good one!
  • #109
  • Jun 10, 2012 4:18am Jun 10, 2012 4:18am
Cindyxxx suggest you make a research in risk/reward.
...your on the right path.. the risk % is very important if you want max reward.

you need atleast 50 trades. then its possibel to calculate excact risk %,
that is optimal for you..
StopLoss is for none belivers... Trust the Gurus..
  • #110
  • Jun 10, 2012 4:32am Jun 10, 2012 4:32am
Quoting hanover

If profit factor, which is the product of both win% and average RR, stays significantly greater than 1 over time, then you're profitable. It's both as simple, and as difficult, as that.
Ill take a profit factor of 1.1 that trades 10 times a day of over a system with a profit factor of 10 that trades 10 times a year. The effect of compounding and trade frequency can have a more significant effect on gains than profit factor

Quoting jimmyjames79
Reducing your profit targets allows a better win ratio which in return allows compounding to excel (relative). Also i can do this when the market is trending and consolidating with the same results without having to reduce or lengthen take profits and stops. A win ratio in the 60% or higher range a few trades a day with 2 % risk per trade what else do you need.
This is precisely my experience also. It is not an idea or theory but proven by myself in the market

the most profitable traders with Oanda over the last 7 days trading EUR/USD averaged 15.9 pips per winning trade and 14.3 pips per losing trade. Thats what the guys who are making the most money are doing - FACT!
BTC Return This Year: na
  • #111
  • Jun 10, 2012 4:42am Jun 10, 2012 4:42am
THIS VIDEO IS SOMWHAT ON TOPIC
Inserted Video
  • #112
  • Jun 10, 2012 4:55am Jun 10, 2012 4:55am
Quoting lillelise
Cindyxxx suggest you make a research in risk/reward.
...your on the right path.. the risk % is very important if you want max reward.

you need atleast 50 trades. then its possibel to calculate excact risk %,
that is optimal for you..
Fact is any way can work. It's too arbitrary to run through the various factors that increase or decrease the profit curve here. Obviously in the right market conditions targeting higher reward ratios to risk will achieve higher returns. But it's a generalization to say this would be the case for all traders.

It's a no brainer FOR ME to switch to trade this way because my entries are good in all market conditions and so I can comfortably increase my risk provided I can still trade the same way without emotions coming into play, lower my target to one which is achieved more frequently and thus achieve the same or better results. (also for all the reason I outlined in my first post in this thread which I can't be bothered repeating).

This to me is not system hopping, just adapting my method as my confidence increases and thus my desire to make heroic 100 -200 pip trades suddenly is no longer required by my ego.

Everyones different it's taken me literally years to find an exit method I'm comfortable with. My old one was great but I believe this to be better FOR ME.

Do your own testing though.
Time hides Nothing
  • #113
  • Jun 10, 2012 5:00am Jun 10, 2012 5:00am
Quoting 4extool

Guys, I wish you happy trading. It's my birthday today "42" god help me :-) I'm on my way to the airport for a quick few days in Thailand.

All the best.
No one cares
Time hides Nothing
  • #114
  • Jun 10, 2012 5:25am Jun 10, 2012 5:25am
Quoting diceman555

THIS VIDEO IS SOMWHAT ON TOPIC
Nah, apparently the conventional wisdom of century-old maxims and all the regularly repeated advice from established and well respected pros is all wrong, FF members know better.....
  • #115
  • Jun 10, 2012 5:29am Jun 10, 2012 5:29am
Quoting M.A.C.Doug

the most profitable traders with Oanda over the last 7 days trading EUR/USD averaged 15.9 pips per winning trade and 14.3 pips per losing trade. Thats what the guys who are making the most money are doing - FACT!
The (unreliably reported) short term performance of Oanda traders is now the yardstick by which we measure success, and those are the people we should aspire to emulate in our trading? Really?

Oh boy, why didn't anyone tell me this before!

~16 pips 1:1 trading Eur/Usd over the past week, wooohooo!
  • #116
  • Jun 10, 2012 5:45am Jun 10, 2012 5:45am
Quoting pipmutt
An alternative could be focussing on and managing something which you do have total control over, exploiting the times you are right to the max, compounding profit and reducing risk within a trade, having reduced overhead, and less probability/need of overtrading.

The option of whether to exploit one trade for all it's worth, with less risk, as opposed to taking the money and running over and over, with more risk, really is an easy and logical choice to make for me. I can't understand why anyone would purposely avoid the opportunity to take money...
You don't have to hold a 200 pip trade to it's 200 pip top or bottom maximize it's potential. You may note that at the best prices the market will move the fastest from, then there's the scalpers who jump out.. The heavyweights shaking out and all the games in between all the way to that 200 pip target.

Anyway... Those 200 pp trades will move the fastest from the best prices and you only have to add to them a few times at the lower end of that spectrum to get the same effect of hanging on for the full monty. Trouble is you can't have your cake and eat it as well. To do both takes some serious balls and willingness to get pipped out of good trades over and over again. This IS psychologically demeaning, and not even necessary. The rewards are of course satisfying,,, when they finally pay off.

My only point is... like you said, in managing your trade and managing your money you don't have to stay in the market and catch the top or bottom to maximize a really good call. You simply have to note it early on and give it more weight. You can still let your winners pay you and cut your losses short on 1:1 r:r.

Anyway that's my argument on that. I could make a case for either way.

Icing on this cake is the fact that markets range 75% of the time.
Time hides Nothing
  • #117
  • Jun 10, 2012 5:52am Jun 10, 2012 5:52am
In my experience traders will always prefer 60% win rate and 1/1 r/r over 40% win rate and 2/1 r/r...

People just instinctively want to be a winner!!!

I would take 40% at 2/1 anyday, hands down... not going to go into detail, there's better traders out there that will explain why, if you're interested.

Expectancy and potential are two things that need to be explored though...
tradewith60
  • #118
  • Jun 10, 2012 5:56am Jun 10, 2012 5:56am
http://www.nobrainertrades.com/2010/...placement.html
tradewith60
  • #119
  • Jun 10, 2012 6:00am Jun 10, 2012 6:00am
Quoting CindyXXXX

You don't have to hold a 200 pip trade to it's 200 pip top or bottom maximize it's potential.
I agree, but surely if the market has the potential to offer more then it would be counter productive to deny it that opportunity simply because of some arbitrary R:R figure conjured up by a trader who has a need to be right more times than wrong and an urge to constantly bank profit, that wouldn't make sound financial or logical sense would it?

I know there's a saying about a bird in the hand but come on, why settle for one bird when there are potentially two, three, or more just there for the taking, especially when the risk is the same or less.
  • #120
  • Jun 10, 2012 6:04am Jun 10, 2012 6:04am
I prefer these statistics:
3% gain and 5% lose a day with simple idiotic system that generate 80% win rate a month (20-21 days trade).....in May.....

How it sounds like?
fooled by randomness in art
Meditation All Time Return: 8.9%
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