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Pure Risk to reward trade System - 1 to 3- Totally random entries

  • #61
  • Jul 25, 2012 8:08pm Jul 25, 2012 8:08pm
Trade 7 Wed July 25, 9:05 Pm gbpusd –long 1.5922
dice rolls where 6 and 2
  • #62
  • Jul 26, 2012 12:13am Jul 26, 2012 12:13am
Aren't you stacking multiple orders on the same pairs here? Maybe it would be better to wait for the outcome of one trade before you add others?
  • #63
  • Jul 26, 2012 7:05am Jul 26, 2012 7:05am
Trade 8 Thr July 26, 7:55 Am gbpusd –long 1.5648
dice rolls where 5 and 2
  • #64
  • Jul 26, 2012 7:25am Jul 26, 2012 7:25am
Quoting Hugh Briss
Aren't you stacking multiple orders on the same pairs here? Maybe it would be better to wait for the outcome of one trade before you add others?
I think you are right if I was doing a system that was based on anything other then RRR.

I would be up at this time if Oanda have taken out my 1st trade.
in fact with what is on I am up money at this time.
of course I would be up a lot at this time if the FED had not talked about QE2
all my trades I think would have been winners that were losers and the one winner would have been a loser


The usdchf again bounced out my target if it takes it out I will be up for the week.

its fun watching this ..
  • #65
  • Jul 26, 2012 8:01am Jul 26, 2012 8:01am
Hello Teb63 and others,

Hope I am not coming on too strongly here but I would like to add my thoughts onto your thread in the hopes for your benefit.

Currency market is anything but random.

It trends.

The only saving grace will be your 1:3 r:r but it will be only a matter of time. At the end, it will not work to your expectation.

Long term trend is the greatest edge in currency.

Regards

Lex
  • #66
  • Jul 26, 2012 8:45am Jul 26, 2012 8:45am
Quoting LexKim
Hello Teb63 and others,

Hope I am not coming on too strongly here but I would like to add my thoughts onto your thread in the hopes for your benefit.

Currency market is anything but random.

It trends.

The only saving grace will be your 1:3 r:r but it will be only a matter of time. At the end, it will not work to your expectation.

Long term trend is the greatest edge in currency.

Regards

Lex

Hi Lex

1. What do you think are my expectation?
2. yes I understand trend.
3. In day and over charts I agree there is no "random" in under that time frame I think there is and more to the point there is
a. market manipualtion.
b. And range trading in the over all the |"day trend"
4. There is no "random" in the real market but
a. there is no real market in 4X
b. we the small guys do not really know what is really going on- so to us alot is random or at least looks random
3. If my trades are random, will not 1/2 my trades be with the trend?
so ...... the RRR of 3 to 1 is very powerful!!

in the end what I am doing is seeing if RRR can over come no system

I think it might - and I would say summer is a bad time for a syatem like this because its a thin market which leads to range markets which is the killer of this type of system not the trend, in a strong trending market I WILL WIN easy with this "system"


lets see that will happen thanks for your thoughts
  • #67
  • Jul 26, 2012 9:07am Jul 26, 2012 9:07am
Quoting TEB63
Hi Lex

1. What do you think are my expectation?
2. yes I understand trend.
3. In day and over charts I agree there is no "random" in under that time frame I think there is and more to the point there is
a. market manipualtion.
b. And range trading in the over all the |"day trend"
4. There is no "random" in the real market but
a. there is no real market in 4X
b. we the small guys do not really know what is really going on- so to us alot is random or at least looks random
3. If my trades are random, will not 1/2 my trades be with the trend?
so...
Hello Teb63,

Thanks for the detailed response.

I especially like your enthusiasm and your character to hold mutual respect for other traders.

You are right.

The future is unknown.

I sincerely wish your method does work out well for you.

Trade well.

Regards,

Lex
  • #68
  • Jul 26, 2012 9:09am Jul 26, 2012 9:09am
Quoting TEB63
Hi Lex

1. What do you think are my expectation?
2. yes I understand trend.
3. In day and over charts I agree there is no "random" in under that time frame I think there is and more to the point there is
a. market manipualtion.
b. And range trading in the over all the |"day trend"
4. There is no "random" in the real market but
a. there is no real market in 4X
b. we the small guys do not really know what is really going on- so to us alot is random or at least looks random
3. If my trades are random, will not 1/2 my trades be with...
Thank you TEB for your thread. I' m with you, the more time I' m in Forex, the less time I spend looking at charts. Systems like yours are fresh air for my mind. Thanks a lot. Will follow it ....

Cheers
  • #69
  • Jul 26, 2012 9:12am Jul 26, 2012 9:12am
Quoting LexKim
Hello Teb63,

Thanks for the detailed response.

I especially like your enthusiasm and your character to hold mutual respect for other traders.

You are right.

The future is unknown.

I sincerely wish your method does work out well for you.

Trade well.

Regards,

Lex

Hi Lex

thanks - I think we can do better then just "random"
what I am trying to show is that MM and RRR
is far more important then any system

So I think you are right in that, to trade well you need a good system
I think I am right in we need good MM and RRR to trade well

so the two of us; to do the best would both need
what the other brings to the table

cheers

  • #70
  • Jul 26, 2012 9:09pm Jul 26, 2012 9:09pm
Trade 9 Thr July 26, 10:04pm Audusd sell 1.0401
dice rolls where 4 and 4
  • #71
  • Jul 26, 2012 10:43pm Jul 26, 2012 10:43pm
Hi, I want to start off by saying that I mean no disrespect to anyone here, and that I truly believe you have genuine faith in idea that the risk to reward ratio is a factor in profitable trading. I'm just here to debunk the idea in general.

While it is true that "RRR" is an important factor to note, I find it always annoying when people tout it like they understand why it's important. I'm not sure who started it, but I smirk every time someone talks about "RRR" here, because the way it's stated is almost always misleading, as in the case here.

The truth is, "RRR" is an important factor for a different reason than what is being "taught" in this forum generally. The misinformation is almost malicious, because it gives false confidence where none is warranted.

A little basic math will perhaps clear the misunderstanding:

EV, or expected value is the determining factor for judging if a strategy/trade is profitable. This is a fact. No amount of fancy wordplay will change it. An EV>0 is profitable, EV<0 is unprofitable.

The EV of a particular trade for example, is calculated as (simplified) the probability of it hitting TP*reward - probability of hitting SL*risk.

As you can see, the "RRR" does indeed play a part in the calculation, but it is but one part of the equation. Now, if we do some substitution, we will see why this entire experiment is futile.

In this experiment, we assume the markets movements and our actions are completely random.

That would mean that the probability of hitting TP,P(tp) is 1/3 the probability of hitting SL,P(sl).

EV = P(tp)*reward-P(sl)*risk
if P(tp) = x, and P(sl)=3*P(tp)

EV = x*reward-3*x*risk
but reward = 3*risk (according to the RRR).

EV = x*(3*risk) - 3*x*risk
EV = 0

That's IF there is 0 spread and 0 commission.

In other words, your experiment here is one of variance, not EV, and really proves nothing more than the fact that the variance will exist.


RRR in most cases should not even be used as a variable for consideration when determining profitable strategies. We usually use it to estimate our variance and manage drawdown.
  • #72
  • Jul 26, 2012 10:58pm Jul 26, 2012 10:58pm
If you are relying on the "trendiness" of the forex markets to generate a net positive result, then wouldn't you be better to place both a long and a short position simultaneously on each pair. If the tendancy to trend does persist, you have a greater chance of success.
  • #73
  • Jul 26, 2012 11:02pm Jul 26, 2012 11:02pm
Quoting deathbait
Hi, I want to start off by saying that I mean no disrespect to anyone here, and that I truly believe you have genuine faith in idea that the risk to reward ratio is a factor in profitable trading. I'm just here to debunk the idea in general.

While it is true that "RRR" is an important factor to note, I find it always annoying when people tout it like they understand why it's important. I'm not sure who started it, but I smirk every time someone talks about "RRR" here, because the way it's stated is almost always misleading, as in the case...
wow!!!
so what r u sugesting?
Iam just A pips on the rode :nerd:
  • #74
  • Jul 26, 2012 11:04pm Jul 26, 2012 11:04pm
DB,

Aren't you assuming a normal distribution, and, I think, independent trials? If so, do you have any statistics to back that up?

Realus
  • #75
  • Edited 11:20pm Jul 26, 2012 11:04pm | Edited 11:20pm
Quoting deathbait
Hi, I want to start off by saying that I mean no disrespect to anyone here, and that I truly believe you have genuine faith in idea that the risk to reward ratio is a factor in profitable trading. I'm just here to debunk the idea in general.

While it is true that "RRR" is an important factor to note, I find it always annoying when people tout it like they understand why it's important. I'm not sure who started it, but I smirk every time someone talks about "RRR" here, because the way it's stated is almost always misleading, as in the case...

This math is all very interesting but has nothing to do with forex
What you say shows you do not really understand RRR or the reason why RRR is the most important part of trading as its the biggest part of MM.
You need to understand
1. Forex is not a real market ... it is rigged- its not like stocks or gold where there is a a real price - because they have a cental market
2. When have I ever said that forex was random (I said random entries)
3. Forex is the best trend market in the world (ie not random)
This is the reason RRR works well in 4X because it’s not random-
4. If it was random in fact you would end up in a range market which would not be good at all for RRR
Cheers
  • #76
  • Jul 26, 2012 11:15pm Jul 26, 2012 11:15pm
i actually agreed that money management and risk management is king. We cannot based on chart to get 100% of where we are heading that's from what i experienced. most of the times, its just pure random how price sudden surge or plunge due to fundamental. And that's one of the reason why i favor using buy and sell stops down with a high RR. Because limits and entries now is like waiting to go against the trend eventually.

I wait for more statistics .
  • #77
  • Jul 26, 2012 11:50pm Jul 26, 2012 11:50pm
Quoting TEB63
This math is all very interesting but has nothing to do with forex
What you say shows you do not really understand RRR or the reason why RRR is the most important part of trading as its the biggest part of MM.
You need to understand
1. Forex is not a real market ... it is rigged- its not like stocks or gold where there is a a real price - because they have a cental market
[color=black][font=Verdana]2....
Now I'm starting to wonder if you're deliberately trolling.

Money management does not take risk:reward into consideration at all. What are you talking about. It takes variance into consideration, which is a FUNCTION of risk:reward. Of course, you MIGHT think so if you also have a warped idea of how money management is supposed to work.

1) Forex is LESS rigged than equities or commodities. Are you kidding me. They're all rigged, but if anything, forex is LESS rigged. (if by rigging you mean big players moving the markets at will)

2) It is random for the purpose of the calculation of EV in this case.

3) Statement is false and makes absolutely no sense. Many instruments can trend much longer(think why the subprime crisis happened), but that's besides the point.

4) Absolutely wrong. Trends happen at random all the time. That's how baccarat players lose their money...by thinking they see patterns that don't exist. For example, look at these pictures of random walks. Look familiar? Also, read up on gambler's fallacy. Your idea that random generators must always give you ranging graphs is similar to it.


How can you say I'm the one that doesn't understand the effects of RRR when I can lay down the equations for you to see, and all you can comment on it is that it is "interesting" but "nothing to do with forex"?
Attached Images
  • #78
  • Jul 27, 2012 12:08am Jul 27, 2012 12:08am
Quoting deathbait
Now I'm starting to wonder if you're deliberately trolling.

Money management does not take risk:reward into consideration at all. What are you talking about. It takes variance into consideration, which is a FUNCTION of risk:reward. Of course, you MIGHT think so if you also have a warped idea of how money management is supposed to work.

1) Forex is LESS rigged than equities or commodities. Are you kidding me. They're all rigged, but if anything, forex is LESS rigged. (if by rigging you mean big players moving the markets at will)

2) It is random...

Wow?
1. Trolling for what?

2. How can you know your MM without knowing your RRR?
In fact you cannot!

3. Forex trends the best overall, can you cherry pick examples in other areas of coarse - but overall forex is the best and in fact EurUsd is the best trend anywhere

4. I did not understand what you are saying about trends in your point 4
if you are saying there is no trends that would be silly so I must not be reading it right

5. As for equations again they are based on your beliefs great. But this is WAY WAY to simple an equation to deal with any market and that my friend if a fact. I know people that make “trading equations" for banks and trust me they are pages long and 1/2 the time they do not work

6. But I think the main point is you do not understand what I am doing here
Cheers
  • #79
  • Jul 27, 2012 12:16am Jul 27, 2012 12:16am
Quoting Realus
DB,

Aren't you assuming a normal distribution, and, I think, independent trials? If so, do you have any statistics to back that up?

Realus
It assumes market movement is a random walk(verdict's still out on that by the real pros : http://en.wikipedia.org/wiki/Random_walk_hypothesis )

*do note that even opponents of the random walk hypothesis say that any edge gained from non random walk markets comes from abusing information, which excludes this experiment since it just enters on random.


I COULD write up a program to analyse tick data from dukascopy, but that's besides the point.

Point I wanted to make was, people are using RRR wrongly. Even if it wasn't a normal distribution and the market non-random, the RRR would not affect EV as much as people are expecting, and that's my point. People need to start looking at EV the same way they're looking at RRR and MM, since that's the actual important figure in any endeavour. RRR and MM are just catch phrases that don't matter until you get your EV right.
  • #80
  • Jul 27, 2012 12:18am Jul 27, 2012 12:18am
TEB63 I understand the point you are making. The only reason that i have been trading live for over 7 years without blowing my acct and currently in profit is because i have a min of a 1:2 RR on all my trades.

If one can understand that risking 3 to gain 1 is a guaranteed slow death to your account. Then you should believe the opposite is true.

Its just common sense.

Happy Trading!
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