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

  • #481
  • Jun 17, 2012 11:17am Jun 17, 2012 11:17am
This is where we come to a close on this thread, friends. Thank you.
  • #482
  • Edited Jun 19, 2012 3:38am Jun 18, 2012 7:42am | Edited Jun 19, 2012 3:38am
Quoting Roofx
This is where we come to a close on this thread, friends. Thank you.
Sorry Roo, pipmutt had a few queries I didnt get round to addressing. I felt obliged to reply although I agree, we are done here
Quoting pipmutt
I don't understand the logic or the math behind those statements.

How can he risk more? One side of the ratio, risk, could be identical.
Thanks pipmutt for reading my post so thoroughly and examining my ideas

I used to trade with an average 1:2 and a win rate of 36%. I now trade the same technique with 1:1 which has increased the win rate to over 60%. I can risk more per trade because the overall drawdown is lower from losing streaks. I rarely have losing streaks greater than three trades now. I used to have much greater losing streaks. If I risked the same per trade, I would drawdown much further with the higher reward/lower win rate money management. That is not theory. That is actual experience

Quoting pipmutt
How can he compound faster? Unrealised profit is still profit which can be utilized.
If you are winning more trades you have more opportunities to increase your lot size and compound your returns. You cannot compound your returns until you take the next trade after you have increased you equity. Yes you can do this with unrealised profit but you still need the winning trade that takes your account to a new high and this happens more often with a higher win rate.

Quoting pipmutt
How does a higher win rate using 1:1 have less drawdown than a lower win rate and better than 1:1? If anything the opposite is more likely to be true.
As explained above, the lower win rate has bigger losing streaks. The risk per trade might be equal but the drawdown of the two techniques is not equal.

Quoting pipmutt
Why is there less risk of trader error? Again the opposite is more likely to be true as he trades more frequently.
because he wins more and has less drawdown, trading is less psychologically taxing than someone hitting for the fences and having to trade through 20 or more losers in a choppy market to get one home run to pay for it all.

Quoting pipmutt
Yes they are, but not for your scenario. There's nothing better than watching a trade make money without any exposure to risk and profit being locked in as the trade develops, whereas every new trade has new exposure to risk. If the trader has psychological issues with trading and taking risk (which really need to be addressed and resolved) then risk free has simply got to be better than taking on new risk with his higher frequency of trades.
I cant really comment as I dont trade this way. In my experience, I have found, I am better off taking profit at predetermined targets. The runners do not compensate for the stop outs and breakevens, at least not for me. I dont care if you or anyone else can trade this way well, when all is said and done, I trust only my own experience.


Quoting pipmutt
Or.....you could trade in the right direction, let profits run, compound gains within a profitable open trade, and 'milk' 5% from a single trade. And all with the one initial risk which is reduced to zero with profits locked in as you go.


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There is no zero risk here. You are risking your unrealized profits till the trade is closed and with every new entry you are increasing that risk. No such thing as risk free
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  • #483
  • Last Post: Jun 18, 2012 6:42pm Jun 18, 2012 6:42pm
Quoting Roofx
This is where we come to a close on this thread, friends. Thank you.
This has been done for some time. There is no right or wrong answer on the question of best R:R. It all depends on your strategy.
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