Risk:Rewards & Some experience on trading

I use 1:2 for risk:rewards, what you guys use? I find it quite useful for my trading experience.

I always try to shoot for something between 1:20 and 1:100, but obviously depends on the market. However I won't cut it short, if the market runs further.

A 1 : 2 risk to reward ratio is must in my view. But if you are trading as a scalper or inter day then it is not a must that you can achieve this ratio in your every trade. Trading in higher time frame can make this possibility.

I:2, yes that sounds good enough and most traders stick with the 1:2 or opt for something higher..but at the end of the day, your RR is dependent on your strategy, and a few additional factors.

Minimum is 1:1 R/R.

But prefer to have trades with more than 1:3 R/R

However according to my experience, we cannot apply same R/R ratio. Need modifications to get the best results without hitting the SL

It depends on what the market is offering in regards to the setup and strategy.

For example when i consider a trade i look at the 3 most likely exit points before entering, ideally i want my first exit point to be at least 1:2.
However if i have confidence in the setup i would settle for 1:1

Risk : reward ratio of 1:2 is what i prefer a lot and if i get anything more than this is a jackpot for me.

1 RISK : Infinite reward ratio ... when you use a reward cap you stop your winners from running

If your strategy is winning most of the time, then you may neglect risk to reward. But if you have a low winning rate strategy then you have to concentrate on risk to reward.

The idea that having a r:r of X will give you any kind of edge is the most misunderstood concept in any trading book or forum. Which trader makes money?

Trader A risks 10 pips to make 20 pips and he wins 25% of his trades.

Trader B risks 20 pips to win 10 and he wins 80% of his trades.

This is a really good debate.

But most of the traders failed to go above 60 % hit rate

Alot of people don't figure in recovery too. Technically if you use % based risk and reward based on account size your account will naturally decrease with 1:1 @ 50%.
For example:

100$ lose 50% = 50$ win then win 50% = 75$ 1:1 risk:reward at 50% win rate 2 trades

here it is in reverse

100$ win 50% = 150$ then lose 50% = 75$ 1:1 risk:reward at 50% win rate 2 trades


what this means is that if you use % of account based position sizing your account will have the tendency to drift towards 0 while if you use fix risk with plateaus you will have more efficient use of capital

for example:

100$ win 25$ then lose 25$ = 100$ at 1:1 @ 50% this stops the natural downward drift

I use a fixed based plateau with anchoring which decreases the initial risk but allows me to fully inject my capital into my trade and aim for unlimited reward (see chart below) From 0 to STD -1 im only 1/4 capitalized and aim to cut losses multiple ways I restrict the trades that would hit std -1 std -2 and std -3 to the distance between std -1 and 0 and cut position sizing by not injecting capital into losing trades but as profitable trades progress I continuously inject more capital as I seek to hit std +3 or higher...

the result is:

when trading randomized data you will create profit overtime just by skewing the normalized data.. when applied to markets which actually have drift or slight direction the probability is not a normal curve and many trades will venture into std +1 - +3 or higher enhancing the profit over trading randomized data. This is how you can tell that the market is not random even tho to the untrained eye sometimes it looks that way.. In addition to this simple skewing of trades and sizing you can look to payback risk over time what I call phi burn.. or the ability to burn risk over time shinking losses. And that is atleast the trick to my trading and positioning....

Risk : Reward ratio of anything higher than 1:2 is always good for the traders so that even with the best targets then can make some really good amount of money and enjoy their trading successfully.

A pre-planned risk:reward ratio poses a serious problem. The problem is, the 50% win scenario (at best ) should be seen as the win percentage of most systems that have a 1:1 risk/reward ratio. As soon as one moves to 1:2, the win % decreases proportionally, so if take profit is double stop loss (1:2), the win percentage will fall to 25%.

It can be ultimately advantageous to have a nice risk:rewad ratio, after the system has been created and backtested, but I think that any system molded to fit an arbitrary risk/reward ratio can be disastrous. When traders try to tighten their stop loss, in an arbitrary fashion, it disposes them to getting stopped out with more frequency.

Risk reward is an important factor is a traders life. If we aim a higher reward then we can make money even if we have low win rate but with unbalance risk to reward a higher winning rate is required.

The higher the reward the more mistakes you can make.
In my trading I look for risk/reward 1:10 - 1:100

This is a very good explanation

A fix dollar risk per trade is really a great way to trade when you have a good risk to reward in your trading strategy. But that dollar should be what you can easily afford to lose without affecting your trading account much.

I started an account just to talk about this (I'm a newbie, uhg).

So the concept of R:R is pretty straight forward, but logically speaking if you have a system that prevails 50%+, to me it doesn't make any sense to avoid any trade at or above 1:1. As mentioned previously in this thread, a lot of this has to do with the type of trader you are, but let me lay my initial money management plan out and hopefully receive some constructive feedback.


My first demo account will be a scalping account, with the following philosophy in place... please critique if necessary.

$1000 initial investment.

R:R = At least 1:1, nothing less (If I'm to assume I have at least a 50%+ edge, I don't see why I should avoid 1:1 setups)

SL = $50 (which is 5% of $1000)

I will not be basing risk or SL on percentages though. If you lose 5% on a trade, then immediately follow it up with a 5% gain, you will not have broken even over the two trades. I don't like this.

My idea to keep things simple is to use a level based system, such as the following...

Account value $1000-$1999 = max risk $50.

Account value $2000-$2999 = max risk $100.

Account value $3000-$3999 = max risk $150.

I will use the technicals to tell me where my stop should be on the chart, then use a calculator to determine lot/order size based off the $50/$100/$150/ect risk.

Any advice, or suggested changes to this demo plan?

If you want to become successful in this risky market, you need to make a good plan to make deal with the risks.