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

  • #301
  • Jun 12, 2012 9:21pm Jun 12, 2012 9:21pm
Quoting pipmutt
Personally my trades are closed when the market, and my analysis of it, indicate they should be closed rather than some arbitrary ratio number.
While I agree with this,
such a position is likely rare. Most people, let alone traders, need their ideas to agree with each other.
To be able to make a cogent argument separately for the SL and for the TP, is a valuable skill in trading.
Thus, most would turn to a more artificial exit and/or entry such as a set R:R or other metric, so that it doesn't conflict with but merely turns on/off the failed trade.

I got this notion from a popular thinking typology, here, that tells similarly about synthesists.
  • #302
  • Jun 13, 2012 3:12am Jun 13, 2012 3:12am
Quoting ha-pattern

While I agree with this,
such a position is likely rare. Most people, let alone traders, need their ideas to agree with each other.
To be able to make a cogent argument separately for the SL and for the TP, is a valuable skill in trading.
I think it becomes easier if one looks at it as simply 'buying', 'selling', and 'exposure' rather than SL and TP, it's more applicable not to mention helps relieve some of the psychological challenges. Having said that, we also need to try and keep viability in mind, it's a juggling act!



Quoting ha-pattern
I got this notion from a popular thinking typology, here, that tells similarly about synthesists....
Thanks for the links, I haven't taken the questionnaire yet but it will be interesting to see the results!
  • #303
  • Jun 13, 2012 7:12am Jun 13, 2012 7:12am
pipmutt - With respect, you have your own style of risk reward management and that's great that it work for you. But it is not the only style that works. You are using a method that gives a high reward for the risk but likely a low win rate, with less frequent trades, and the outcome is net positive for you. Some use a method that gives a 50/50 risk to reward ratio with a greater than 50% win rate and very frequent trades. If they risk 0.5% of their account to gain 0.5% and they achieve 6-7 wins out of 10 and take 10-20 trades in a day, that leaves a profit of 0.5-2% account growth per day.
  • #304
  • Jun 13, 2012 7:25am Jun 13, 2012 7:25am
Quoting Roofx
pipmutt - With respect, you have your own style of risk reward management and that's great that it work for you. But it is not the only style that works. You are using a method that gives a high reward for the risk but likely a low win rate, with less frequent trades, and the outcome is net positive for you. Some use a method that gives a 50/50 risk to reward ratio with a greater than 50% win rate and very frequent trades. If they risk 0.5% of their account to gain 0.5% and they achieve 6-7 wins out of 10 and take 10-20 trades in a day, that...
Something you need to consider is periods where your win loss drops... compare the R/R's on the risk of ruin table.... see how easy it could all go wrong with such tight margins

http://2ndskiesforex.com/strategies-...u-should-know/
tradewith60
  • #305
  • Jun 13, 2012 7:52am Jun 13, 2012 7:52am
It's statistics that suggest over time, given a Trader's results and the probability of losing streaks that odds favor a 3:1 reward to risk model. It doesn't require much in terms of "edge" to acquire such a setup... just a foundation of simple technicals and proper time frame analysis.

Using a 1:1 ratio, unless scaling at first objective and then moving to Breakeven is the only time 1:1 should be used. How accurate is your trading? If you are only making 50% accurate trades... you won't survive the "normal" give and take this business requires in equity. To be profitable with a 1:1 you need to have 70% or more accuracy to have any change of longevity.

Consider however, the 3:1 ratio as a base model... and higher is even greater. You would only need to be accurate about 33% of the time to Breakeven... and 50% accurate is profitable... modestly, but still profitable. As time passes and your development improves, the ratio of reward to risk will become a dynamic duo with higher accuracy in your trading... the end result... fat wallets and sore face muscles.

GLGT
  • #306
  • Jun 13, 2012 8:05am Jun 13, 2012 8:05am
Quoting 60minuteman
Something you need to consider is periods where your win loss drops... compare the R/R's on the risk of ruin table.... see how easy it could all go wrong with such tight margins

http://2ndskiesforex.com/strategies-...u-should-know/
Thanks for the link. Near the begining of the article is this:

"You can actually have a 3:1 Reward-Risk ratio and lose all the money in your account. You can also have a 1:1 Reward-Risk ratio and make money day in day out."

This is what I've been trying to say but apparently it is lost on some people and most are stuck in the general masses herding mentallity that only RRs of 1:2 or greater are profitable. I would love for more people to realise that as you adjust the RR ratio, with it comes and adjustment of win/loss ratio. And also that lower timeframes are a completely different ball game. You just can't apply the same old tired 1:2 price action trading style to the M1 chart.

I am talking about a scalping method that seeks high probability short term fluctuations for 10 pips of profit with a 1:1 RR. I think many here who are shooting my methodolgy down are thinking in terms of the 4H timeframes and old fashioned price action methods.
  • #307
  • Jun 13, 2012 8:14am Jun 13, 2012 8:14am
Quoting 60minuteman
Something you need to consider is periods where your win loss drops... compare the R/R's on the risk of ruin table.... see how easy it could all go wrong with such tight margins

http://2ndskiesforex.com/strategies-...u-should-know/
Ok here is the table.

According to it, with a 50% win rate at 1:1 RR there is a 100% risk of ruin. Now...if it is a true 1:1 RR trading method that means each win equals exactly 1 loss, with all transactions costs factored in. So it would actually be a break even method not one that had a 100% chance of complete loss. If one can average in the 60-70% win rate at 1:1 they can, as the article starts of by saying, make money day in day out. I don't understand why people aren't grasping this.
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  • #308
  • Jun 13, 2012 12:54pm Jun 13, 2012 12:54pm
Quoting Roofx
Ok here is the table.

According to it, with a 50% win rate at 1:1 RR there is a 100% risk of ruin. Now...if it is a true 1:1 RR trading method that means each win equals exactly 1 loss, with all transactions costs factored in. So it would actually be a break even method not one that had a 100% chance of complete loss. If one can average in the 60-70% win rate at 1:1 they can, as the article starts of by saying, make money day in day out. I don't understand why people aren't grasping this.
I understand completely and know what you are saying.

I am not against a more positive r:r at all, I am just saying like you have said that there is more than one way to make money and a 1:1 is certainly a decent way if you know what you are doing.

I think everyone just has their own opinions and some are less willing to see the other side to their argument than others.

By the way what happened to your thread where you were trading live? There seemed like no better way to prove the theory than in there...

What say we start a thread in the interactive trading based on this thread here... all are welcome to join and we can prove that 1:1 can be profitable.

Trading my system you would have had 7 trades today 5 wins 2 losses... and yes you could very well have run some trades for a little more tan 1:1 but not much... but taking many bites of the cherry today would have paid you more which is all I think Roofx is trying emphasize.
  • #309
  • Jun 13, 2012 3:17pm Jun 13, 2012 3:17pm
Quoting Roofx

pipmutt - With respect, you have your own style of risk reward management and that's great that it work for you. But it is not the only style that works.
Roofx, I think you might be missing a lot of posts, or maybe misunderstanding them?
  • #310
  • Jun 13, 2012 3:23pm Jun 13, 2012 3:23pm
Quoting Nexas

....we can prove that 1:1 can be profitable.
I'm not sure anyone is disputing that are they?

R:R is just one ratio, it might be interesting to see some Sharpe (or similar) ratios as well.
  • #311
  • Jun 13, 2012 3:41pm Jun 13, 2012 3:41pm
Quoting pipmutt
I'm not sure anyone is disputing that are they?

R:R is just one ratio, it might be interesting to see some Sharpe (or similar) ratios as well.
Why do you now think it might be interesting now to see Sharpe ratios when;


Quoting pipmutt
I don't remember mentioning any particular ratio, just letting profitable trades run when the opportunity arises and the market offers profit. Personally my trades are closed when the market, and my analysis of it, indicate they should be closed rather than some arbitrary ratio number.
you just like to let profits run until your analysis indicates closure?
When the Joker is in the deck.. fear not and play it well
  • #312
  • Jun 13, 2012 3:50pm Jun 13, 2012 3:50pm
Quoting Slim Buffett

Why do you now think it might be interesting now to see Sharpe ratios when;

you just like to let profits run until your analysis indicates closure?
What, you think it wouldn't be interesting to see those numbers, do you think they'd be irrelevant?
  • #313
  • Jun 13, 2012 3:57pm Jun 13, 2012 3:57pm
Hey All,

For those of you who fancy a bit of fun... I have just started the following thread - http://www.forexfactory.com/showthread.php?t=368099

It is dedicated to shorter term trading, so anyone who is interested please pop along and contribute.

Nexas
  • #314
  • Jun 13, 2012 4:09pm Jun 13, 2012 4:09pm
Quoting pipmutt
What, you think it wouldn't be interesting to see those numbers, do you think they'd be irrelevant?
I don't think you're replying to the question.
Irrelevant or not, why do you suddenly find "ratios" interesting when before all that was needed was your analysis?
When the Joker is in the deck.. fear not and play it well
  • #315
  • Jun 13, 2012 4:11pm Jun 13, 2012 4:11pm
Quoting Slim Buffett

I don't think you're replying to the question.
Irrelevant or not, why do you suddenly find "ratios" interesting when before all that was needed was your analysis?
I think you probably need to read the preceding post(s) to understand the context and which specific ratio was being referred to, and why.

Then ask a relevant question if things are still unclear to you......or don't.
  • #316
  • Jun 13, 2012 4:23pm Jun 13, 2012 4:23pm
Quoting pipmutt
I think you probably need to read the preceding post(s) to understand the context and which specific ratio was being referred to, and why.

Then ask a relevant question if things are still unclear to you......or don't.
This seems to be the same standard reply that you gave to Roofx; case in point.....

Quoting pipmutt
Roofx, I think you might be missing a lot of posts, or maybe misunderstanding them?
My question is relevant. Your reply is simply "avoidance". Yes?
When the Joker is in the deck.. fear not and play it well
  • #317
  • Jun 13, 2012 4:24pm Jun 13, 2012 4:24pm
Fixed TP is well not wise, 1:1 is also kinda stupid, as said all fine if you've got limited / zero screen time then it's possibly the best you can do maybe!!

You want to be looking for setups, where your risking 20pips to make upto maybe 200pips.

USOil today, I was looking at a trade on Oil, SL woulda been 22 area I wanted it to pull back a tad more, then got distracted and could of gotten 160pips from it, thats 7:1 making 7 of your 1:1 trades in 1 hit.

That is where the money is at, not taking a guess based on some chart which could easily be read as going the other direction putting a 100tp and 100sl and waiting and seeing with zero input / decision from that point.

And yes the Pro's on seeing there better off exiting, exit, in profit, small profit, huge profit, click click there out!! that's the way to do it.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #318
  • Jun 13, 2012 4:38pm Jun 13, 2012 4:38pm
Quoting Nexas

By the way what happened to your thread where you were trading live? There seemed like no better way to prove the theory than in there...
Yes, I was posting my setups before the fact and then posting my exits, with detailed charts. It was a lot of effort during live trading and there wasn't much interest so I stopped. If there had been lots of interest I would have carried on what I was doing in hopes of helpinf some people out of a rut. Trading isn't fun and it is quite a quiet profession and I enjoy talking about my methods and showing others who might be stuck where I was a couple of years ago. But as I said when scalping the M1, to also be posting detailed charts before I enter it quite an effort and if people aren't interested then I might as well just focus on my trading.
  • #319
  • Jun 13, 2012 4:41pm Jun 13, 2012 4:41pm
Quoting Turveyd
Fixed TP is well not wise, 1:1 is also kinda stupid, as said all fine if you've got limited / zero screen time then it's possibly the best you can do maybe!!

You want to be looking for setups, where your risking 20pips to make upto maybe 200pips.

USOil today, I was looking at a trade on Oil, SL woulda been 22 area I wanted it to pull back a tad more, then got distracted and could of gotten 160pips from it, thats 7:1 making 7 of your 1:1 trades in 1 hit.

That is where the money is at, not taking a guess based on some chart which could easily...
What you've said here is ALL true and at the same time NOT. What you want to be looking for is a trade that works in accordance with the trading method that you trade.

"It doesn't matter whether a cat is white or black, as long as it catches mice." DENG XIAOPING …..... put aside ideology and focus on fact-based pragmatic solutions.
When the Joker is in the deck.. fear not and play it well
  • #320
  • Jun 13, 2012 4:50pm Jun 13, 2012 4:50pm
Quoting Slim Buffett
What you've said here is ALL true and at the same time NOT. What you want to be looking for is a trade that works in accordance with the trading method that you trade.

"It doesn't matter whether a cat is white or black, as long as it catches mice." DENG XIAOPING …..... put aside ideology and focus on fact-based pragmatic solutions.
Depends on your goals if you want to make a small return each year fine, if you want to make a full time living off it then above is the kinda method your after and what I've nearly got cracked.



Nearly could still be years away but I hope not.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
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