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

  • #401
  • Jun 14, 2012 11:44am Jun 14, 2012 11:44am
Quoting Roofx
It's a shame you don't understand some basic concepts of mathmatics before you start making statements like "1:1 is kinda stupid".

My 100TP & 100SL example at the beginning of this thread was simply to explain the mathmatics more easily. But it seems even that was lost on some. I actually apply this to a scalping method, targeting 10 pips per trade, risking exactly the same as I gain and the method has a higher than 50% hit rate. I have been scalping the M1 timeframe 5 days per week, full time, for just under 5 years and been using a method...

a) I don't believe you!!
b) when did I ever say it can't / won't make money ??

You wouldn't want to get 3x's the profit as your risk on good moves ?? that's the strange thing, you don't even try.

How often do you get nearly to your TP then ride it all the way down to your SL ??

The question is, would you make MORE it you removed the TP or used a dynamic TP ( ie changeable to suite the conditions and the setup ), odds are after a learning curve.

And you start this thread, like you've just discovered this amazing secret and you've actually been trading it for 5 years.

BS detector is going WILD!!
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #402
  • Edited 12:29pm Jun 14, 2012 12:02pm | Edited 12:29pm
Quoting Roofx

I disagree.
There's a surprise!

Ok, so what are you doing when you reply to my post or have a conversation with someone, are you predicting or responding? You don't know what they're going to say even though they might be quite predictable (lol, Slim would have a field day here!) so you have to wait to see what they say, then you react/respond.

I can't believe we've dug so far into this barrel!


Quoting Roofx

Because of my edge and using a 1:1, the market hits my target more often than it hits my stop.
You're a scalper (the retail fx trader's definition), and like I said in a previous post although (potentially) extremely profitable, (scalping) could be excluded from pretty much all the widely accepted norms of trading and risk/reward/money management.


Quoting Roofx

If we take your definitions then I too am reacting, not predicting.
You predetermine your target even before opening the trade or seeing what the market is doing so how is that reacting?


Quoting Roofx

It's predicting. It's reacting. It's trading.
Predicting. One out of three.

By the way have you ever calculated a Sharpe ratio or similar? It might be quite revealing.....
  • #403
  • Jun 14, 2012 12:07pm Jun 14, 2012 12:07pm
Quoting Turveyd

BS detector is going WILD!!
You're standing too close to it!

Amazingly most of the rest of your post I actually agree with! Wow, that's a first!
  • #404
  • Edited 2:09pm Jun 14, 2012 1:55pm | Edited 2:09pm
Quoting pipmutt
I suppose it depends on whether you view the market as an adversary or an ally, a competitor to beat or a vehicle which offers opportunities to make money.
Fair enough.

Quoting pipmutt
Comparing trading to casino games is slightly illogical though, a trade doesn't have the same limitations and offers the trader far more flexibility than casinos and casino games offer the gambler.
Agree 100% re the added flexibility. (For example, there's nothing that's obviously analogous to trailing a stoploss in any casino game).

Respectfully disagree if there's any implication that the same MM/expectancy theory principles that apply to casino games don't apply in exactly the same way to the markets (or indeed any activity that involves uncertainty). But your definition as to exactly what constitutes "MM" might differ from mine.

Quoting pipmutt
Someone could use your same indicator and line study argument against you here......
"just because one trader can't get an indicator or line study to work profitably for him, it doesn't mean that nobody else can use it successfully."
Entries and exits are peculiar to trading, but MM is pure math, and a universal concept. Again though, it depends on where one draws the line between "method" and "MM".

For example, I would define pyramiding, in itself, as a form of MM. Pyramiding entries can work profitably in trading. Now I could easily write an EA that makes random entries and then simply adds another position (say) every 10 pips the trade moves in my favor. Can I say with 100% certainty that my EA will be profitable? Of course not. If trading profitably was as easy as that, we'd all be forex millionaires, and without having to perform any analysis, or spend any time at the computer managing our exits. Hence pyramiding in itself is not profitable. What can make it profitable is the understanding of when to pyramid, and when not to; when to enter, and how to manage, each component position. Entries and exits.

No matter what MM system a trader uses, ultimately the only way to be profitable is to be net long while price is rising, and net short while price is falling, heavily/frequently enough to overcome costs.

As I read somewhere "forex is an activity where the expert minority eventually take all of the money of the hapless majority". No MM system is going to rescue a trading wannabe who has no understanding of market behavior. Blindly using a martingale or a hedge, or running an EA that averages up or down, is not going to make one profitable.

[EDIT] I'm not sure if I've ended up refuting your final point, or simply agreeing with it. LOL. But I believe that everything that I've written makes some kind of sense, so I'll let it stand.
  • #405
  • Jun 14, 2012 2:17pm Jun 14, 2012 2:17pm
Quoting Roofx
But 'reacting' is actually just looking into the past to try to guage what the future might hold. When you 'react' to the market you are reacting to old data to try to predict future data. Price action is based on looking at something that is old news.
......"Don't predict, just react to the market" is a commonly thrown around term that many do not fully understand. Reacting to the market IS the act of trying to predict future events. Using price action for example, is an attempt to predict what the market has a higher probability of doing...
Fine post.

Both entries, and exits (managing a trade), involve using past data to attempt to predict what is more likely to happen next. Ultimately entries and exits are nothing more than adjustments to a trader's net position. The more accurately he makes these adjustments, relative to turns in the market (in his trading horizon), the more pips he will bank.
  • #406
  • Jun 14, 2012 2:42pm Jun 14, 2012 2:42pm
Quoting hanover

Respectfully disagree if there's any implication that the same MM/expectancy theory principles that apply to casino games don't apply in exactly the same way to the markets (or indeed any activity that involves uncertainty). But your definition as to exactly what constitutes "MM" might differ from mine.
I'm out of my depth on that one, you have superior knowledge of the subject and therefore an advantage over me as I'm really not familiar with expectancy theory principles that apply to casino games.


Quoting hanover

[EDIT] I'm not sure if I've ended up refuting your final point, or simply agreeing with it. LOL. But I believe that everything that I've written makes some kind of sense, so I'll let it stand.
lol, me neither but it must have made sense to me otherwise you can be sure I would have had something to say!
  • #407
  • Edited 3:19pm Jun 14, 2012 2:47pm | Edited 3:19pm
Quoting hanover

Both entries, and exits (managing a trade), involve using past data to attempt to predict what is more likely to happen next. Ultimately entries and exits are nothing more than adjustments to a trader's net position. The more accurately he makes these adjustments, relative to turns in the market (in his trading horizon), the more pips he will bank.
What about 'in the now', what the market is actually doing and telling us as opposed to what we predicted it would do when we opened the trade? If we adjust positions according to what the market is doing are we reacting or predicting? (I preferred my conversation analogy over the ball analogy but then I suppose I would! ). Wouldn't it be better to allow for flexibility so we can try and accommodate the unknown rather than have some arbitrary R:R right at the start regardless? If the market is offering profit should we accept it and exploit the market for as much as we can, or should we limit our profit because more would exceed our original target?

To me the answers are patently obvious......
  • #408
  • Jun 14, 2012 2:48pm Jun 14, 2012 2:48pm
Predicting is impossible in short your trying to predict if some bank / fund manager will start dumping 1mil full sized lots at market or vice versa in the next few minutes or hours.

But the fire sale is what creates momentum which is tradeable market dumps 50 pops in no time, big seller, will it zag back up or not ? Who knows depends if buyers think that level is to cheap or not.

So jump on moves ride them jump off don't make it any harder, this works best in scalper land Ofcourse.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
  • #409
  • Jun 14, 2012 6:27pm Jun 14, 2012 6:27pm
Quoting Turveyd
a) I don't believe you!!
b) when did I ever say it can't / won't make money ??

You wouldn't want to get 3x's the profit as your risk on good moves ?? that's the strange thing, you don't even try.

How often do you get nearly to your TP then ride it all the way down to your SL ??

The question is, would you make MORE it you removed the TP or used a dynamic TP ( ie changeable to suite the conditions and the setup ), odds are after a learning curve.

And you start this thread, like you've just discovered this amazing secret and you've actually...
You need to read more carefully before getting out your BS meter. I said I have been scalping 5 days a week for almost 5 years but I have only been using a 1:1 RR ratio for about 6 months. I did not start the thread because I had just discovered something amazing. This is nothing new. I am just tired of seeing people rant on about how only 1:2 or higher RRR can work when I am sitting here every day happily plodding along with a method that relies on a 1:1 RRR. I started the thread to remind other traders of the benefits of using a 1:1 RR ratio in their trading instead of feeling like they must seek out only 1:2 and higher trades to make it work. I am not saying my method is better than anyone elses, I am just going against the main belief that one must only seek a high reward to risk in their trades. I don't know why some people are being hostile about it. Some people can make an inverse RRR like 2:1 work just fine too. Often (and depending on the actual method of entry) a 1:1 RRR allows a higher hit rate than a 1:2 or higher RRR. That is all I am saying. I'm getting tired of people being weird about this and wish I had never botherd my bottom even daring to suggest anything that goes against the sheep mentality.
  • #410
  • Jun 14, 2012 6:33pm Jun 14, 2012 6:33pm
Quoting Turveyd
Even with a 10 SL like I trade the reason for entry at times becomes irrelevant and it becomes a wait and see game.


That's is why everyone is H4 crazy M1 is to live, you make a mistake odds are you lose the trade and can do that many times in a row repeating the exact same mistake out of frustration. H4 with bigger TP SL becomes nearer and nearer a 50/50 game it's safe but for a small account holder you will never really get anywhere that's where the max 12% per year comes from, that's a good year for a proper H4 only swing trader.

Which...
Complete and utter BOLLOCKS!!! Trend trading a 42 EMA on a 4 hour chart, using the 1 hour chart and 168 Ema to enter. , 10% a month is not out of reach.That's a tad more than 12% a year. YOU are a fantastic mathematician so you do the sums. Then fuck off, you fuckin idiot.
  • #411
  • Jun 14, 2012 7:04pm Jun 14, 2012 7:04pm
Ok guys, I'm tired of this petty arguing and the constant need of some to bash a simple trading ingredient they simply aren't experienced enough or smart enough to understand. There are too many big egos here and not enough traders. It's ridiculous. Why do some of you take the approach of "If I do not understand it I must bash it to the ground"? or "If I can't do it then it must simply be impossible". I was never able to make much money trading higher reward to risk ratios on the higher time frames but I don't sit here telling those that can that they are full of BS.
  • #412
  • Edited 8:28pm Jun 14, 2012 7:10pm | Edited 8:28pm
Quoting pipmutt
. Wouldn't it be better to allow for flexibility so we can try and accommodate the unknown rather than have some arbitrary R:R right at the start regardless? If the market is offering profit should we accept it and exploit the market for as much as we can, or should we limit our profit because more would exceed our original target?

To me the answers are patently obvious......
I don't think anybody disagree's with this statement! It's just not relative to how some of us trade.

For instance I look for new entries every day. I am not concerned about the possible profit i can make per entry i am looking for a fixed amount. The fixed amount is not just some arbitrary number it is based on what the set up is worth more then 50% of the time with an even risk reward. I like to have stops placed in smart areas (outside trend lines or below support above resistance) This is how you judge if the setup is worthy or not. Your risk verse what the setup offers more then 50%of the time.Of course the setup may offer more.But our take profits are set based on what we know through analyzing charts. It is also very predictable. Analyzing the past has merit to the future probability of what your setups worth more then 50% of the time. Utilizing smart stop placement to allow an extra edge. There also are more opportunities for 1:1 R:R trades so ensuring an abundance of setups is also important. So there really isn't an in the now for us because we aren't physically managing our trades. Matter of fact a lot of my trades are going on when i am not even awake. A few trades opened and closed with 2% risk per trade with a win ratio slightly more then 50% will achieve phenomenal yearly returns. Now if i let you manage my entries obviously if your a profitable trader you will increase these returns. No doubt.

Also with my 1:1 R:R with the daily charts my take profit is at the top of the trend line. With currencies like AUDCAD Trends are strong.The trade runs pulls back runs pulls back all within a neatly formed trend line. So i take profit at the top of the trend line. And set a limit order after there is a pullback 2/3 of the trend. All my trades are limit orders. Unless i see something good happen in front of me.

All the action though in the markets happens during my night time and early morning. It's slow during my day.

So yeah you are right your perception is obviously logical just not relative to how we trade. Especially when my trades aren't even being observed. Well some are. My whole argument has simply been with this strategy you can be just as profitable as a great trader. Only because of the efficiency of a mechanical approach.

Also a trader with a 1:1 R:R and a trader with a 1:2 with a equal non compounded return would have different balances if they chose to compound. Not by much but over a lifetime of trading it sure does add up as those extra returns are compounding now as well.

based on 100,000.00

compounding new balance with risk 1% reward 2%

2 -1 -1 2 2-1-1-1 2 2 = +5 ( compounded return 4996.00 )

compounding new balance with 1% risk 1% reward

1 1 1 1 -1 -1 1 1 1 = +5 (compounded return 5079.00)

The extra losses effects the compounding process

With there being more 1:1 R:R trades combined with the compounding process it just makes sense mathematically to systems trade this way.

Now like i said if you want to improve my profits fine. With systems trades though your energy is diverted to new probable profit entries rather then managing each trade.

Like we agreed an R:R can be equally effective under the right circumstances.

Either way I tried! Ha Ha! And your right about some of my comments being childish. Some of my comments have not been relevant to the thread as well.
My trades are 100% profitable 65% of the time!
  • #413
  • Jun 14, 2012 10:00pm Jun 14, 2012 10:00pm
Quoting jimmyjames79

I am not concerned about the possible profit i can make per entry i am looking for a fixed amount. The fixed amount is not just some arbitrary number it is based on what the set up is worth more then 50% of the time with an even risk reward.
I understand completely what you're saying/doing (it's not rocket science ), and I made my points way back in this post, it's getting repetitive!

The problem with discussions like this is someone starts a thread and expresses their opinion or tries to give what they think is good advice, others point out the flaws or express a contrary opinion, and rather than having a reasonable debate about the merits or otherwise of an idea it descends into chaos with nothing conclusive or constructive ever coming out of it. Lacking the strength of their convictions people on both sides ignore challenging questions, blow smoke, become abusive, or make some generic statement or other like 'it works for me' or 'that can't work'. The whole thing becomes an exercise in futility, no-one learns anything or is any the wiser, and the thread ends up as entertainment value only!

Anyway that said......your compounding calculations are invalid, you're working on the premise that everything is fixed rather than flexible and that it's necessary to close a trade before profits can be compounded.

  • #414
  • Jun 14, 2012 10:09pm Jun 14, 2012 10:09pm
Quoting TheGreatMilenko

Complete and utter BOLLOCKS!!! Trend trading a 42 EMA on a 4 hour chart, using the 1 hour chart and 168 Ema to enter. , 10% a month is not out of reach.That's a tad more than 12% a year. YOU are a fantastic mathematician so you do the sums. Then fuck off, you fuckin idiot.
Bad day at the office huh?
  • #415
  • Edited 11:14pm Jun 14, 2012 10:49pm | Edited 11:14pm
Quote
Anyway that said......your compounding calculations are invalid, you're working on the premise that everything is fixed rather than flexible and that it's necessary to close a trade before profits can be compounded.

[/quote]

Actually there completely relative to the thread. You should reread the first post.

Again yes your leverage may be used whether your profits are realized or not. When you use them we will be back to step 1. Also whether your R:R is flexible or not you still will have an average R:R. Non compounded returns may be the same. But compounded returns would give the person with the even R:R a higher return.

You should re think this before you reply!

And peace back to you! I'm making this effigy doll what do you look like! Ha Ha! JK!
My trades are 100% profitable 65% of the time!
  • #416
  • Jun 14, 2012 10:53pm Jun 14, 2012 10:53pm
Quote
The whole thing becomes an exercise in futility, no-one learns anything or is any the wiser, and the thread ends up as entertainment value only!

You sure are fueling the fire. Also doing a good job of it considering your a 1 man army. You weren't kidding when you said you were the minority! Ha Ha!

And i imagine the thread would get repetitive especially when your juggling 10 posters or so!
My trades are 100% profitable 65% of the time!
  • #417
  • Jun 14, 2012 10:57pm Jun 14, 2012 10:57pm
Quoting pipmutt
What about 'in the now', what the market is actually doing and telling us as opposed to what we predicted it would do when we opened the trade? If we adjust positions according to what the market is doing are we reacting or predicting? (I preferred my conversation analogy over the ball analogy but then I suppose I would! ). Wouldn't it be better to allow for flexibility so we can try and accommodate the unknown rather than have some arbitrary R:R right...
What is "now", if it's not the infinitesimally small slice of time that separates the past from the future? When we look at a chart, everything we see is past data, irrespective of whether we're planning a trade, or managing an already open trade. If the latter, we're using past data to decide whether price is more likely to continue favorably or not, i.e. to what extent we should close out, or let the position continue to run. That is a form of prediction. At least, that's how I interpreted what Roofx was saying.

FWIW, I'm all in favor of making decisions (adjusting TP, SL levels, closing part of the position, etc etc) as a trade unfolds, provided that the trader can read the market well enough so that the adjustments improve his overall P/L. Anything that increases profit without additional risk has got to be the optimum bonus!
  • #418
  • Jun 14, 2012 11:00pm Jun 14, 2012 11:00pm
Quoting jimmyjames79
You sure are fueling the fire. Also doing a good job of it considering your a 1 man army. You weren't kidding when you said you were the minority! Ha Ha!

And i imagine the thread would get repetitive especially when your juggling 10 posters or so!
lol I would just give up jimmy, you cant argue with stupidity and ignorance
  • #419
  • Jun 14, 2012 11:07pm Jun 14, 2012 11:07pm
Quoting w.penn
lol I would just give up jimmy, you cant argue with stupidity and ignorance
Just keeping the entertainment value up! LOL
My trades are 100% profitable 65% of the time!
  • #420
  • Jun 14, 2012 11:37pm Jun 14, 2012 11:37pm
Quoting jimmyjames79

Actually there completely relative to the thread. You should reread the first post.
Are you replying to a previous post or something, what I said was they're invalid as in they're not based on valid information.


Quoting jimmyjames79

Non compounded returns may be the same. But compounded returns would give the person with the even R:R a higher return.
How so? Profit is profit, compounding is compounding.


Quoting jimmyjames79

I'm making this effigy doll what do you look like! Ha Ha! JK!
Clooney lookalike


Quoting jimmyjames79

You sure are fueling the fire. Also doing a good job of it considering your a 1 man army. You weren't kidding when you said you were the minority! Ha Ha!
Ah a few more than 1 but the minority for sure, besides I think quality is more important than quantity as it is in trading.


Quoting jimmyjames79

And i imagine the thread would get repetitive especially when your juggling 10 posters or so!
I know! They all want it explaining to them individually!

Mind you I like the comments from w.penn and the like. If that's all they've got to say to contradict my opinion then I must be doing something right!
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