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

  • #141
  • Jun 10, 2012 10:38am Jun 10, 2012 10:38am
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.
I concede that looking at the lucky winners on Oanda or FF isn't really evidence of anything much. Everyone has to do what works best with their own method anyway.
  • #142
  • Jun 10, 2012 11:05am Jun 10, 2012 11:05am
Quote
Manage your money....and your trade.

Managing the trade is your edge!



Quote
I suspect there are some psychological reasons behind having the urge to bank profits as soon as possible and move on to another trade.....
[/quote]

I'm not sure why there would have to be a psychological reason to take profits. I can hold a trade just as long as you can. Obviously your fixed on getting the most out of each trade. In doing so trades can turn against you at the drop of a dime. Especially in the financial crisis that we are in right now. I know what my setup is worth 70% of the time. You don't know what your setup is worth if you try to ride it to the end. It could keep going it could reverse it could stay flat. Way to many variables for my in and out method.

Also you had mentioned there are more risks opening up new trades verse holding a winner. Well my account proves to differ. It's much easier for me to predict a short term move then a long term move. I capitalize on highly probable short term moves. I can bank the same profits as you bank with holding a winner. Now when your winner turns against you I'm still banking short term profits.

I know you will probably still disagree. It's probably a psychological issue!

Ha Ha! Just messing with you!
My trades are 100% profitable 65% of the time!
  • #143
  • Jun 10, 2012 11:24am Jun 10, 2012 11:24am
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...

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...
Where are these better traders at. You will be more profitable in this scenario if you took the 1:1 RR with the 60% win ratio. The account will compound much faster this way. You may have received some bunk information from these so called better traders and there flawed perception's. Not flawed because of there R:R. Flawed because of there bias.

If your not compounding who cares which one you choose. You get the same results. Except one way you lose more.

Like you said expectancy and potential. Smart stop placement with even reward increases both expectancy and potential to take profits. Now if you try to increase your reward both decrease.
My trades are 100% profitable 65% of the time!
  • #144
  • Jun 10, 2012 11:32am Jun 10, 2012 11:32am
I'm not going to read the whole thread so apologies in advance if these points have already been made.

1 : 1 is a good ratio to learn expectancy when paper trading a strategy. It's easy to use and gives meaningful statistics over a reasonable sample. That, in my opinion is it. After that it's all negative.

Why close a trade at 1 : 1? Why not move the stop to 95% and hold out for more? When it gets to 5 : 1, move your stop to 2 : 1, and so on. I grant this rarely happens but sometimes you find a top or a bottom and then the whole world is your lobster.

The rest of what I think about settling for 1 : 1 is unprintable and in my opinion threads like this could only be started by brokers low on liquidity. Like Cloggie, who lost his mind trying to make sense of the posts in the Euro thread, I sometimes wonder if Forex Factory exists solely to give money to the market from the (expletive deleted); (expletive deleted); (expletive deleted) friends of the Great Gonzo.
Gone to a better place
  • #145
  • Jun 10, 2012 11:36am Jun 10, 2012 11:36am
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.
Ha Ha nice post. What I meant by care less is. I don't have a problem with my edge. I was just implying once you find an edge managing it is so much more important then the edge itself. If you haven't found an edge money management can't help you. If you find an edge money management will ensure your edge.

I sure do like chocolate though!

I Completely understand your post even though it has nothing to do with my intent of the post itself.
My trades are 100% profitable 65% of the time!
  • #146
  • Jun 10, 2012 11:50am Jun 10, 2012 11:50am
Quoting smikester
I'm not going to read the whole thread so apologies in advance if these points have already been made.

1 : 1 is a good ratio to learn expectancy when paper trading a strategy. It's easy to use and gives meaningful statistics over a reasonable sample. That, in my opinion is it. After that it's all negative.

Why close a trade at 1 : 1? Why not move the stop to 95% and hold out for more? When it gets to 5 : 1, move your stop to 2 : 1, and so on. I grant this rarely happens but sometimes you find a top or a bottom and then the whole world is...
I know that there is no one way to trade. Win Ratio is relative to Risk Reward bottom line.

You can tweak it any way you want as long as your in the money while maximizing your profits relative to how you trade.

Your obviously bias to the way you trade. The only thing that makes sense if your going to knock an R:R value. Every strategy is different. One strategy may work better with a 2:1 RR another may work better with a 1:1 RR. I personally have back tested my strategy and it's much more effective with a 1:1 R:R
My trades are 100% profitable 65% of the time!
  • #147
  • Jun 10, 2012 12:09pm Jun 10, 2012 12:09pm
Quoting M.A.C.Doug
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
Yes, I agree.
  • #148
  • Jun 10, 2012 12:17pm Jun 10, 2012 12:17pm
Quoting hanover
Yes, I agree.
I don't come here very often these days but when i do i have the luxury of enlightenment. From you of course!

I agree with your literature as i think the same way just not as precise.

Thanks!
My trades are 100% profitable 65% of the time!
  • #149
  • Jun 10, 2012 1:21pm Jun 10, 2012 1:21pm
Quoting Porkpie

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.
Totally agree, that's it in a nutshell.
  • #150
  • Jun 10, 2012 1:23pm Jun 10, 2012 1:23pm
Quoting jimmyjames79

Managing the trade is your edge!
Is that a question or a statement? If you agree managing a trade is (part of) your edge then how so, what do you consider managing a trade? By the sounds of what you've said it's a simple all in all out 1:1 so where's the trade management?



Quoting jimmyjames79

I can hold a trade just as long as you can.
Then the obvious question is why don't you? Ah ok, the answer is in the next paragraph, "It's much easier for me to predict a short term move then a long term move" so your focus is on predicting direction rather than exploiting some of the outstanding trends we have and the obscene risk:reward which can be achieved. Personally I would find that a limitation rather than an asset.


Quoting jimmyjames79

It's much easier for me to predict a short term move then a long term move. I capitalize on highly probable short term moves. I can bank the same profits as you bank with holding a winner. Now when your winner turns against you I'm still banking short term profits.
You're assuming that short term moves can't be incorporated into holding a profitable trade for as long as the market offers profit. Increasing and decreasing exposure is, like I mentioned before, an integral part of trading. While you're opening and closing trades, taking on risk, paying overhead, and predicting the next short term move a longer term trader is managing his trade, reducing risk, maximising profit, and saving overhead.

And what's all this about compounding? One can compound gains without the need to close a trade and bank the profit, compounding isn't exclusive or more beneficial to short term trades than to longer term trades.


Quoting jimmyjames79

I know you will probably still disagree. It's probably a psychological issue!

Ha Ha! Just messing with you!
lol, nah it's a mathematical and logical one!

Sorry I'm with the pros on this one, let profits run.....
  • #151
  • Jun 10, 2012 1:38pm Jun 10, 2012 1:38pm
Quoting smikester

Like Cloggie, who lost his mind trying to make sense of the posts in the Euro thread, I sometimes wonder if Forex Factory exists solely to give money to the market from the (expletive deleted); (expletive deleted); (expletive deleted) friends of the Great Gonzo.
lol, great stuff!
  • #152
  • Edited 2:59pm Jun 10, 2012 2:32pm | Edited 2:59pm
Quoting pipmutt
Is that a question or a statement? If you agree managing a trade is (part of) your edge then how so, what do you consider managing a trade? By the sounds of what you've said it's a simple all in all out 1:1 so where's the trade management?





Then the obvious question is why don't you? Ah ok, the answer is in the next paragraph, "It's much easier for me to predict a short term move then a long term move" so your focus is on predicting direction rather than exploiting some of the outstanding trends we have and the obscene risk:reward...
I pre manage my trades. Sometimes I intervene and physically manage as well. I am not stuck at an even R:R I just initially strategize around
an even R:R
I understand your points. Unfortunately none of them apply to the way I trade.

Yes you can make multiple trades in 1 position. My strategy does not incorporate this method.

Your glass is half empty if you do not understand the logic of my posts.

Also the mathematics apply to my logic as well. I don't need to prove that to you.

You seem to hope for a new trend or your winners to ride. I don't hope anything. I understand what my setup is worth and i profit in consolidating markets and trending markets. Markets consolidate 80% of the time and trend 20%.

The difference is i understand why what you do works and you don't understand why what i do works.

If you don't believe what i do works. Whatever I am not going to waste my time replying to a naysayer.

Oh yeah and a faster turn around allows for a much more effective compounding process. So not sure how you don't understand. Higher frequency trading obviously is more beneficial to the compounding process then longer term trades due to it's effectiveness to grow your account at greater speeds.

Any How it's not that serious you do your thing and I'll do mine.

You can have the last word my friend!
My trades are 100% profitable 65% of the time!
  • #153
  • Jun 10, 2012 3:15pm Jun 10, 2012 3:15pm
Quoting jimmyjames79


You seem to hope for a new trend or your winners to ride. I don't hope anything. I understand what my setup is worth and i profit in consolidating markets and trending markets. Markets consolidate 80% of the time and trend 20%.
I take the market as I find it, trends and ranges, I trade both. The difference is I have no predefined limit on profit, the market tells me soon enough, whether that's 50 pips or 500 pips I'll take whatever I can get, I'll exploit a profitable trade for as much as I can. To me that makes perfect sense both financially and logically.


Quoting jimmyjames79

The difference is i understand why what you do works and you don't understand why what i do works.

If you don't believe what i do works. Whatever I am not going to waste my time replying to a naysayer.
I have no idea whether what you do works or not, how would I, and why would it make any difference to the discussion? All I'm saying is that when the market offers more profit it seems illogical not to want to take it.


Quoting jimmyjames79

Oh yeah and a faster turn around allows for a much more effective compounding process. So not sure how you don't understand. Higher frequency trading obviously is more beneficial to the compounding process then longer term trades due to it's effectiveness to grow your account at greater speeds.
The account grows in both scenarios. Just as unrealised loss is still a loss, unrealised profit is still profit, both show up on available equity and that equity can be untilized. Sorry, your argument about compounding simply doesn't hold water.


Quoting jimmyjames79

Your glass is half empty if you do not understand the logic of my posts.

If you don't believe what i do works. Whatever I am not going to waste my time replying to a naysayer.

Also the mathematics apply to my logic as well. I don't need to prove that to you.

Any How it's not that serious you do your thing and I'll do mine.
Yep, that's the way these discussions usually end. That alone would make me question just how convinced even you are of your own ideas.

Like I said before, I'm with the pros on this one, let profits run......
  • #154
  • Jun 10, 2012 3:53pm Jun 10, 2012 3:53pm
Quoting pipmutt
I take the market as I find it, trends and ranges, I trade both. The difference is I have no predefined limit on profit, the market tells me soon enough, whether that's 50 pips or 500 pips I'll take whatever I can get, I'll exploit a profitable trade for as much as I can. To me that makes perfect sense both financially and logically.




I have no idea whether what you do works or not, how would I, and why would it make any difference to the discussion? All I'm saying is that when the market offers more profit it seems illogical not to want...
I was hoping your last words were going to be i agree to disagree.

Whether there's equity in your balance unrealized or not is irrelevant to the frequency of your trades. You may use your new found equity on another longer term trade as i'm using it on another short term trade. Again I am turning profits faster compounding at a faster rate.

This should be easy to understand.

To me it's not illogical or logical to let your trades run. Since there are many setups a day for me to trade i don't need to maximize profits in one trade


I look for a 2000% return a year. Trading the way i trade. Maybe you look for more or less. I trade the us stock market in the day time and transfer my balance at the end of the day to the forex market at night. Wake up at 4 Am and transfer it back to the stock market.

So yeah i am convinced that my methodology works just fine!
Averaging .5 to 1 percent a day in the forex market and a little more then 1% per day in the stock market.

Also this debate doesn't have to end negatively. That was not my intention from the start. It takes two to tango.

You are not a naysayer just somebody with a solid opinion.I can respect that!

I personally hate to leave things on a bad note.
My trades are 100% profitable 65% of the time!
  • #155
  • Jun 10, 2012 4:38pm Jun 10, 2012 4:38pm
Quoting jimmyjames79

Whether there's equity in your balance unrealized or not is irrelevant to the frequency of your trades. You may use your new found equity on another longer term trade as i'm using it on another short term trade. Again I am turning profits faster compounding at a faster rate.

This should be easy to understand.
What you're saying is easy to understand, the problem is it doesn't actually make sense. Equity is equity, whether that's realised on a liquidated trade or unrealised profit on a profitable trade, it's all equity.

Trading short term 'frequently' doesn't automatically mean higher return than a longer term trade, a long term trader can and often does still take advantage of short term moves, and can also compound unrealised profit from ongoing profitable trades.


Quoting jimmyjames79

To me it's not illogical or logical to let your trades run. Nobody can predict the future. Since there are many setups a day for me to trade i don't need to maximize profits in one trade
So you don't think risk:reward is of any significance when it comes to performance? You don't think that purposely limiting profit is illogical? Realising potential, irrelevant? Well ok then......


Quoting jimmyjames79

I look for a 2000% return a year.
lol, ok!


Quoting jimmyjames79

I look for a 2000% return a year.

Averaging .5 to 1 percent a day in the forex market and a little more then 1% per day in the stock market.
I calculate that to be over 6,000% pa compounded but what the hey


Quoting jimmyjames79

I personally hate to leave things on a bad note.
  • #156
  • Jun 10, 2012 4:55pm Jun 10, 2012 4:55pm
Quoting jimmyjames79
I was hoping your last words were going to be i agree to disagree.

Whether there's equity in your balance unrealized or not is irrelevant to the frequency of your trades. You may use your new found equity on another longer term trade as i'm using it on another short term trade. Again I am turning profits faster compounding at a faster rate.

This should be easy to understand.

To me it's not illogical or logical to let your trades run. Since there are many setups a day for me to trade i don't need to maximize profits in one trade


I look for...
Errrrrmmm!!

Okay if your trading 200SL 200TP then on that scale it's hard to see a trend strong enough to warrant holding longer so your right, but your sounding more swinger / scalper so say 30:30 ?? there are times where the trend is a cert or near enough and you'll get 100 - 200pips from the same trade, the it's wiser to hold and wait.

Higher frequency is better for compounding ofcourse, in some ways it's easier than longer term well in theory micro trends are easier to spot, but hard cause it's fast and stress full which leads to mistakes and sometimes mulitple losers if you try to fight against the trend trying to pick a bottom.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #157
  • Jun 10, 2012 5:50pm Jun 10, 2012 5:50pm
Quoting pipmutt
What you're saying is easy to understand, the problem is it doesn't actually make sense. Equity is equity, whether that's realised on a liquidated trade or unrealised profit on a profitable trade, it's all equity.

Trading short term 'frequently' doesn't automatically mean higher return than a longer term trade, a long term trader can and often does still take advantage of short term moves, and can also compound unrealised profit from ongoing profitable trades.

If your trading both shorter and longer! Your still wrong! Your longer term trades...
Here's a sarcastic hug right back to you!
My trades are 100% profitable 65% of the time!
  • #158
  • Jun 10, 2012 5:56pm Jun 10, 2012 5:56pm
Quoting Turveyd
Errrrrmmm!!

Okay if your trading 200SL 200TP then on that scale it's hard to see a trend strong enough to warrant holding longer so your right, but your sounding more swinger / scalper so say 30:30 ?? there are times where the trend is a cert or near enough and you'll get 100 - 200pips from the same trade, the it's wiser to hold and wait.

Higher frequency is better for compounding ofcourse, in some ways it's easier than longer term well in theory micro trends are easier to spot, but hard cause it's fast and stress full which leads to mistakes...
Yeah i swing . Swings don't last more then a day or so!
My trades are 100% profitable 65% of the time!
  • #159
  • Edited 6:47pm Jun 10, 2012 6:35pm | Edited 6:47pm
Pip mutt

It's illogical to not take unknown future profits. If i could predict the future then i would agree. But who's to say which trades are going to run and which ones aren't. There's no guarantee except whats on the table right now.


You obviously have a superiority complex. If you can't do 2000% a year nobody can. Right! Shit i was up 300% with investments i made in the options market in may! Buying puts! Options traders with correct money management can easily achieve 2000% a year.

I never rule out possibilities another sign that your glass is half empty.

Also the 2000% is what i look for did not say thats what my account is projected to achieve. My projections relative to my stats are higher at the moment. An even risk reward with a 72% win ratio will do that! I am sure my win rate will settle in the high fifties to the mid sixties. I am just doing very well at the moment.

Also your wrong about the compounding process no matter how much you want to tweek the initial conversation so stop trying to manipulate your answers. They don't make sense! Higher frequency with the same win ratio and money management obviously compounds at a higher rate simply due to higher turn around rate. Your longer term trades can't compound equally to shorter term trades even if you trade short term trades with your long ones.

If you try to maximize your profits and the trade turns against you. You lose both time and money. In a traders case time is money.
My trades are 100% profitable 65% of the time!
  • #160
  • Jun 10, 2012 7:03pm Jun 10, 2012 7:03pm
Quoting jimmyjames79

I pre manage my trades. Sometimes I intervene and physically manage as well. I am not stuck at an even R:R I just initially strategize around
an even R:R
So after all that back and forth you're not even using a fixed 1:1


Quoting jimmyjames79

It's illogical to not take unknown future profits.
Huh?


Quoting jimmyjames79

You obviously have a superiority complex. If you can't do 2000% a year nobody can. Right
Thank you for your diagnosis Doc, is this where you start making personal remarks and insults?

As for 6,000% return pa I have no idea whether anyone can do it or not, I've never seen sustainable returns like that so until I do I can only assume they're unachievable. Mind you I haven't met any multi billionaire forex traders.....yet! Are you going to be the first?


Quoting jimmyjames79

I never rule out possibilities another sign that your glass is half empty.
I don't believe in Santa or the Tooth Fairy either, I guess I'm just a born sceptic huh.


Quoting jimmyjames79

Also your wrong about the compounding process no matter how much you want to tweek the initial conversation so stop trying to manipulate your answers.
My answers addressed the question about compounding, realised and unrealised profit, and available equity. Think about it for a while and maybe you'll understand, it's only a simple math calculation. Or don't....


Quoting jimmyjames79

If you try to maximize your profits and the trade turns against you. You lose both time and money. In a traders case time is money.
Have you never heard of locking in profit? Adjusting stops? Reducing exposure?

Come on, don't get silly now, we've had a reasonable discussion this far but I feel we're fast approaching the point where it all gets a little bit childish, let's not go there, eh

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