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

  • #121
  • Jun 10, 2012 6:07am Jun 10, 2012 6:07am
Quoting 60minuteman

In my experience traders will always prefer 60% win rate and 1/1 r/r over 40% win rate and 2/1 r/r...
That's the bit I'm having trouble understanding, why?


Quoting 60minuteman

People just instinctively want to be a winner!!!
Maybe the explanation really is that simple....


Psychology, what a bummer that is!
  • #122
  • Jun 10, 2012 6:07am Jun 10, 2012 6:07am
Quoting pipmutt
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...
Sounds like greed to me.. The key word being potentially.

Why go for a POTENTIAL 5+% a week when I can make a LIKELY 5+% a week and do this most weeks and still attract investors.

The key for me in all this is the unpredictability that's taken out of my equity curve.

I've never understood or been able to take PARTIAL profits. Always seemed so half arsed to me, but I think one I will likely adapt to something of this nature. Who knows.

Hey I'm still learning, not afraid to admit that.
Time hides Nothing
  • #123
  • Jun 10, 2012 6:20am Jun 10, 2012 6:20am
maybe people don't stop to consider the markets we are trading.

The forex markets are the most trending of any markets out there, the potential for rewards compared to risk are immense.

This is the best edge we all possess before we have even considered anything else, learn to exploit just a fraction of that.
tradewith60
  • #124
  • Edited 6:35am Jun 10, 2012 6:24am | Edited 6:35am
Quoting CindyXXXX

Sounds like greed to me.. The key word being potentially.
It's all potentially, nothing is guaranteed. If it's greed then the other side of the coin is fear, the fear of losing (profit). Neither really have a place in trading, least of all fear, it can be paralysing.


Quoting CindyXXXX

Why go for a POTENTIAL 5+% a week when I can make a LIKELY 5+% a week and do this most weeks and still attract investors.

The key for me in all this is the unpredictability that's taken out of my equity curve.
Right, so like I mentioned before....

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.

An alternative could be......


Quoting CindyXXXX

I've never understood or been able to take PARTIAL profits. Always seemed so half arsed to me, but I think one I will likely adapt to something of this nature. Who knows.
Adjusting exposure (up and down) is an integral part of trading in my opinion, the market is shades and rarely black or white.


Quoting CindyXXXX

Hey I'm still learning, not afraid to admit that.
Me too, there's always something new, it's what keeps the game interesting otherwise trading would be about as mundane as working on a factory production line, a snoozefest!
  • #125
  • Jun 10, 2012 6:29am Jun 10, 2012 6:29am
Think of it like chess...

i'm just sacrificing pawns every day trying to capture rooks and queens.

I'm expecting to lose more pieces than I win, but im going to win every game...

(that's some quality bullshit.... but true nonetheless...)
tradewith60
  • #126
  • Edited 7:02am Jun 10, 2012 6:49am | Edited 7:02am
Quoting pipmutt
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!
Oanda has the largest client base in the industry and the data sample includes both retail and institutional traders. 16 pips/trade trading EUR/USD 1:1 made them the top earners with the largest broker.

I suppose youve been pyramiding into the downtrend since 1.32 cause you are superior to this group? Nobody trades the forex market, or any other market this way and consistently makes money any more. Buy and hold hasnt worked for 10 years. the knowledge you are using to argue your point is redundant. If you let profits run in forex you are going to give them back more times than the runners will make up for.

An important trait to have is adaptability. Sarcastic argument is not helpful at all
Quoting 60minuteman
The forex markets are the most trending of any markets out there,
Thats a myth. the forex trends and consolidates the same as equities and commodities. The forex market is more difficult to trade than other markets because of volatility. It has become popular because it moves quickly, not because it trends more. It is the ideal market for impatient people and thats the same reason the average forex account lasts 3 months
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  • #127
  • Jun 10, 2012 6:49am Jun 10, 2012 6:49am
Quoting M.A.C.Doug
Thats a myth. the forex trends and consolidates the same as equities and commodities. The forex market is more difficult to trade than other markets because of volatility. It has become popular because it moves quickly, not because it trends more. It is the ideal market for impatient people and thats the same reason the average forex account lasts 3 months
maybe true, maybe not..

can't really say forex is more volatile than equities or commodities though, you ever watch gold and oil on m15?
tradewith60
  • #128
  • Jun 10, 2012 7:06am Jun 10, 2012 7:06am
Quoting 60minuteman
maybe true, maybe not..

can't really say forex is more volatile than equities or commodities though, you ever watch gold and oil on m15?
good answer

I have never watched those instruments on that time frame

Mayby its not more volatile, but I can assure you, it trends no differently either

There has been some great comments in this thread. there trully is a wealth of experience and alot of thought gone into the challenge of trading amongst the members of this forum. If we all agreed with each other we would have no one to trade against. Its a robust argument amongst passionate people. Lets respect each other for that
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  • #129
  • Jun 10, 2012 7:06am Jun 10, 2012 7:06am
Quoting pipmutt
It's all potentially, nothing is guaranteed. If it's greed then the other side of the coin is fear, the fear of losing (profit). Neither really have a place in trading, least of all fear, it can be paralysing.

Adjusting exposure (up and down) is an integral part of trading in my opinion, the market is shades and rarely black or white.
All true... But I'm sure you will admit with exploiting a good point of entry in the market 1:1 is much more LIKELY (not guaranteed) the big ones are much more potentially.

As or point number two... I will aspire to this at some point I believe.

Will see how I go for the next few months on my new MO. With that in mind. But if it doesn't break. I'm not fixing it .

Thanks for your thoughts on this. Gotta run before those pesky beagles get a sniff haha
Time hides Nothing
  • #130
  • Jun 10, 2012 7:13am Jun 10, 2012 7:13am
Quoting 60minuteman
maybe true, maybe not..

can't really say forex is more volatile than equities or commodities though, you ever watch gold and oil on m15?
gold and oil are both commodites and currencies!
wo-yoy! wo-yoy! wo-yoy! wo-yoi! wo-yoy-yoy-yoy!
  • #131
  • Jun 10, 2012 7:15am Jun 10, 2012 7:15am
Quoting M.A.C.Doug

Oanda has the largest client base in the industry and the data sample includes both retail and institutional traders. 16 pips/trade trading EUR/USD 1:1 made them the top earners with the largest broker.
Let's assume those stats prepared by Oanda themselves are accurate and representative, how about some more stats like consistency, account longevity, overall return on risk, and overall P&L? Also not just for a week!


Quoting M.A.C.Doug

I suppose youve been pyramiding into the downtrend since 1.32 cause you are superior to this group?
I'm not attempting to demonstrate any superiority, this is pretty basic stuff as far as trading goes, I'm simply presenting a logical and financially sound opinion opposing what others have presented, incidentally one which is universally shared and accepted among many household name successful, experienced, and respected professional traders and analysts. I've never heard of one advising or advocating cutting profits short and aiming for 1:1.

As regards selling Eur/Usd, what I do/did is irrelevant to the discussion but yes I was selling any rallies a while ago and looking for 1.25, there's a before-the-fact post to that effect around here some place if you're really that interested or it makes any difference to the discussion.


Quoting M.A.C.Doug

Nobody trades the forex market, or any other market this way and makes money any more. Buy and hold hasnt worked for 10 years. the knowledge you are using to argue your point is redundant
Hardly, as can be evidenced for example by the downtrend in Eur/Usd and long term trends in other instruments.
  • #132
  • Jun 10, 2012 7:24am Jun 10, 2012 7:24am
Quoting CindyXXXX

All true... But I'm sure you will admit with exploiting a good point of entry in the market 1:1 is much more LIKELY (not guaranteed) the big ones are much more potentially.
Just playing the odds my friend and trying to get what I can. Potentially....likely....semantics?


Quoting CindyXXXX

But if it doesn't break. I'm not fixing it .
No but maybe you could improve it and make it work better, that would be good right?


Quoting CindyXXXX

Thanks for your thoughts on this. Gotta run before those pesky beagles get a sniff haha
lol, not seen them around for a while, probably got their teeth into a juicy bone elsewheres!
  • #133
  • Jun 10, 2012 7:37am Jun 10, 2012 7:37am
Quoting pemully
gold and oil are both commodites and currencies!
ok, ok...

maybe what I should of said is...

Forex trends very well and there's an opportunity to exploit that for higher R/R
tradewith60
  • #134
  • Jun 10, 2012 8:11am Jun 10, 2012 8:11am
Quoting pipmutt
Let's assume those stats prepared by Oanda themselves are accurate and representative, how about some more stats like consistency, account longevity, overall return on risk, and overall P&L? Also not just for a week!
You could look at FF's trade explorers. The 2012 leader board for live accounts shows the same pattern. High win rates and approx 1:1 average win loss ratios for all the top earners.

BUT beware statistics! Look beyond the averages and you will see that the maximum wins for all the top performers are many times the average. It seems they are not cutting all their winners short, but are taking more profit when the potential arises.
  • #135
  • Jun 10, 2012 8:16am Jun 10, 2012 8:16am
Must be running a SL and TP the same, no great magic behind it is there really.

SL's are okay as they limit your loss, which is a good thing.

TP's on the other hand, limit your profit, which is a bad thing.

Obviously you have to do what works best for your method and time, in this case you believe 1:1 is ideal for you, I personally like getting the odd 100 profit from risking 10.

Main issue with 1:1 is, your next loss writes off your previous profit, atleast with 2:1, even if you lose 50% of the time your still gaining ground.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #136
  • Jun 10, 2012 8:24am Jun 10, 2012 8:24am
Quoting euclid
You could look at FF's trade explorers. The 2012 leader board for live accounts shows the same pattern. High win rates and approx 1:1 average win loss ratios for all the top earners.

BUT beware statistics! Look beyond the averages and you will see that the maximum wins for all the top performers are many times the average. It seems they are not cutting all their winners short, but are taking more profit when the potential arises.
See how long one account can stay up the top for. If you look at the winners of the trading competitions those guys get lucky too.

Not knocking the logic of letting winners run but 2012 isn't over yet hopefully FF allow GfT dealbook accounts on trade explorer before then.

That said I better go and have a sticky beak before jumping to conclusions.

I'd rather a steady spot in the middle than an unsustainable spot at the top.
Time hides Nothing
  • #137
  • Jun 10, 2012 8:26am Jun 10, 2012 8:26am
Quoting Turveyd

Main issue with 1:1 is, your next loss writes off your previous profit, atleast with 2:1, even if you lose 50% of the time your still gaining ground.
If you let you SL get hit yes
Time hides Nothing
  • #138
  • Jun 10, 2012 8:37am Jun 10, 2012 8:37am
Quoting CindyXXXX
If you let you SL get hit yes
If your SL gets hit but then the market goes much lower, then it's a good SL, if it turns on it then it's a bad SL which happens.

Most people are trading 1:1 generally 200TP, 200SL via H4 charts so the leader board is going to be full of them.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #139
  • Jun 10, 2012 8:37am Jun 10, 2012 8:37am
Quoting CindyXXXX
See how long one account can stay up the top for. If you look at the winners of the trading competitions those guys get lucky too.

Not knocking the logic of letting winners run but 2012 isn't over yet hopefully FF allow GfT dealbook accounts on trade explorer before then.

That said I better go and have a sticky beak before jumping to conclusions.

I'd rather a steady spot in the middle than an unsustainable spot at the top.
So the guy at the top is currently sitting on nearly 50% drawdown and the trade is still open. Election in the mix and potential Monday gap.

I bet his account is massive lol... not. I've seen enough
Time hides Nothing
  • #140
  • Jun 10, 2012 8:40am Jun 10, 2012 8:40am
Quoting CindyXXXX
If you let you SL get hit yes
That's the bottom line. Its pointless having this black and white conversation as trade management can change the RR dynamics dramatically from trade to trade. Trade management, its where the real art of trading takes place and can change a mediocre static fixed entry/exit method, into a very profitable method, and vice-versa.
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