Very small stops (from 3 pips), ridiculously high RR (to 1:30) | Forex Factory

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Attachments: Very small stops (from 3 pips), ridiculously high RR (to 1:30)
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Very small stops (from 3 pips), ridiculously high RR (to 1:30)

  • #1
  • First Post: Jan 20, 2016 2:43pm Jan 20, 2016 2:43pm
I'm starting to look into the "High RR" way of trading, as the title of this thread say, this trading is all about entering in the market at very specific points/time that offers a potentially high risk-reward ratio, this mean risk a few pips to make 5-10 times the risk taken with each trade.

As the title say, from 3 pips (it may be even less, but overall the number would be below the 10pips), in this way we can keep losses very small (let's say 1% of the account or less), and yet use a decent leverage that would pay out quite well when trades run.

Actually, i'm starting to believe that this is really the best way of trading, and i'm going to explore here, how to do it and what kind of results can be expected.

But first, i would like to make a call to the traders out there that do trade in this way, you are all very welcome to share your experience, your ideas and your opinions on this subject.
  • #2
  • Jan 20, 2016 3:07pm Jan 20, 2016 3:07pm
My highest risk:reward trade was 1:27 risk:reward . Entered from 15m timeframe, took 36 hours to complete .

A: How?
R: Luck
A: But how ?
R: Cover your trade and hope it will turn in 1:20+ risk:reward .

The #1 job of a trader is risk management.
Money moves the market, not an indicator.
  • #3
  • Jan 20, 2016 3:18pm Jan 20, 2016 3:18pm
One point to consider is cost per trade in comission & spread. Tighter stops will impact the W/L ratio, and increase trading costs.
  • #4
  • Jan 20, 2016 4:05pm Jan 20, 2016 4:05pm
http://www.forexfactory.com/showthread.php?t=549608
  • #5
  • Jan 20, 2016 5:02pm Jan 20, 2016 5:02pm
Quoting tunera
in this way we can keep losses very small (let's say 1% of the account or less).
High R:R trades can work well if your'e experienced.
You need to use intuition. You have to take your time to get in the zone.
You need to relax, feel and then flow with the market.
Your entries must be precise and correct.

This style of trading takes a large amount of discipline as it can become very frustrating, and in-turn, you will make human errors.

Essentially you're scalping and letting the "winners" run..

If you are using 1% risk/per trade...by the end of the session...
IMO...It's likely you will have a draw-down of around 20-50%.

Try and use less % risk/per trade. Otherwise you are putting unnecessary stress on yourself..

Wish you well
Good luck!
  • #6
  • Jan 20, 2016 5:05pm Jan 20, 2016 5:05pm
Quoting Retlaw
http://www.forexfactory.com/showthread.php?t=549608
  • #7
  • Jan 20, 2016 8:06pm Jan 20, 2016 8:06pm
I think it's a complete waste of time to talk about Risk/reward and stop sizes without talking about how it affects the strike rate of your strategy.

Here's a quick example - Risk/reward ratio of 3/4, a strike rate of 80% and who wouldn't say no to that kind of expectancy.
Attached Image (click to enlarge)
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  • #8
  • Jan 21, 2016 12:08am Jan 21, 2016 12:08am
Quoting tunera
I'm starting to look into the "High RR" way of trading, as the title of this thread say, this trading is all about entering in the market at very specific points/time that offers a potentially high risk-reward ratio, this mean risk a few pips to make 5-10 times the risk taken with each trade. As the title say, from 3 pips (it may be even less, but overall the number would be below the 10pips), in this way we can keep losses very small (let's say 1% of the account or less), and yet use a decent leverage that would pay out quite well when trades run....
The concept is correct in my view. However, "small stop" should be relative to the average spread of your pair. If there is an indie that does that, you might be on to something. I have always had to eyeball that.
If you are good at something, never do it for free--Joker
  • #9
  • Jan 21, 2016 12:43am Jan 21, 2016 12:43am
Quoting tunera
I'm starting to look into the "High RR" way of trading, as the title of this thread say, this trading is all about entering in the market at very specific points/time that offers a potentially high risk-reward ratio, this mean risk a few pips to make 5-10 times the risk taken with each trade. As the title say, from 3 pips (it may be even less, but overall the number would be below the 10pips), in this way we can keep losses very small (let's say 1% of the account or less), and yet use a decent leverage that would pay out quite well when trades run....
I do not use such big RR, but very similar approach. The only most important thing is to recognize swing in trending market.
  • #10
  • Jan 21, 2016 1:02am Jan 21, 2016 1:02am
http://www.forexfactory.com/showthread.php?t=522680

I don't trade it but this is something which help you.
  • #11
  • Jan 21, 2016 3:58am Jan 21, 2016 3:58am
It's very stressful way of trading. With 3 pips stop loss you will get so many losses that so can easily lose your confidence. It's better to be consistent with 10 pip stop loss, rather than to get 30 losses in a row with 3 pip stop loss just to find one 1:50 R:R trade
  • #12
  • Jan 21, 2016 4:28am Jan 21, 2016 4:28am
I think stress can depend on a persons point of view. I find for myself, that a small stop loss is less stressful. With a large stop loss, I find myself stressing over all the pips I am losing while I am watching price action slowly approaching my stop loss. I also find that with a large stop loss, I get pissed off watching the price action slowly going my way for a relatively long while, just to get wiped out with a large spike in the other direction and end up with a loss. I would rather lock in some pips with a smaller stop loss and be rewarded for my patience and not penalized for my patience.
  • #13
  • Jan 21, 2016 5:03am Jan 21, 2016 5:03am
Check "Quantum London" indicator:

Analysis @ 1D/4H (Aim for reversals or ABCDE setups- no breakout strategy)
Entry @ 1M/5M

No SL, multiple entries (quantum lot sizing)

P.S: use standard lot sizing for quantum + have 1:400 lev. / $1k for starters.
  • #14
  • Jan 21, 2016 5:18am Jan 21, 2016 5:18am
Targeting high/very high Reward to Risk ratio is one of my favorite subjects.

Stop Loss doesn't have to be very small. It is a rational issue.
So if my target is 10R, and my SL is 20 pips. my target will be 200 pips. and so on ...
The important thing is NOT to TRAIL the stop.

Entry Options:
- Red News, specially if preceded by a narrow range. Stop Orders on both sides.
- Higher Time Frames OHLCs. Limit and Stop Orders
No guts, no glory
  • #15
  • Jan 21, 2016 7:51am Jan 21, 2016 7:51am
I see some confusion, regarding the stoploss size (it is the market that give us the stoploss size, not us.
Each trade opportunity comes with a stoploss size (a previous support or resistance that if broken signal it's time to get out), what we can do is just choose what trade to take, and of course adjust our lotsize (the more the sl size, the smaller the lotsize).

I made an image to see what some trades would look like, this is the german dax of today.

I would say there is some potential!
Attached Image(s) (click to enlarge)
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Click to Enlarge Name: GER30Mo1.png Size: 28 KB
  • #16
  • Jan 21, 2016 10:23am Jan 21, 2016 10:23am
Quoting tunera
I see some confusion, regarding the stoploss size (it is the market that give us the stoploss size, not us. Each trade opportunity comes with a stoploss size (a previous support or resistance that if broken signal it's time to get out), what we can do is just choose what trade to take, and of course adjust our lotsize (the more the sl size, the smaller the lotsize). I made an image to see what some trades would look like, this is the german dax of today. I would say there is some potential! {image} {image}
This totally nails it. Arbitrary stop sizes are kind of ridiculous.
There's always money in the banana stand.
  • #17
  • Edited 3:35pm Jan 21, 2016 12:45pm | Edited 3:35pm
In my experience this can be a great way to trade, because of the way in which risk is limited. The extent of your success depends a lot on how accurate your entries are (I use M15 climax volume candles into S/D zones), while trading the pairs with the strongest daily trends (both fundamentally and price-wise) not only reduces the probability of your SL being taken out by subsequent intraday swings, but also allows you to potentially catch longer moves (e.g. check out the recent GBPJPY,D1 chart) to further increase RR.

The way I look at it is this: Are my entries sufficiently accurate, that if I use (say) a 10 pip SL instead of a 20 pip SL, my win rate will be cut by less than half? If the answer to that question is YES, then my overall profit factor (PF = win rate x avg RR) will be increased by using the 10 pip SL. (Don't forget to factor the spread into the SL).

I concur with Khalil that it's better not to trail the SL, at least not too close.

You can use this approach to try to pick the daily high (in a downtrend). Last Friday I managed to catch the high in GBPJPY with a 10 pip SL (including the spread!), but later I lost my nerve and exited the trade MUCH too early.
(For example, if I'd simply waited until the end of the day, I would have banked > 370 pips -- a 37:1 RR trade in a single day!!)

However, one big proviso: be prepared to incur MANY small losses (including the spreads) as you seek the perfect entry. This can not only be tough emotionally, but it also necessitates lowering %equity risk per trade, to avoid significant account drawdowns -- which undermines overall returns generated by the high profit factor, but then you can't have everything! (You could also mitigate the high loss rate by having two entries -- one with a tight SL, and one with a 'conventional' wider one -- although this is also going to lower overall return).

I agree that the market controls the SL size, if you enter at market. As a variation, using limit orders allows you to control the SL size, albeit at the risk that if price doesn't retrace far enough to trigger your entry, you miss the trade.
  • #18
  • Jan 22, 2016 8:46am Jan 22, 2016 8:46am
Below an image of some trades i've taken (today trades so far) on eu.

Really not incredible trades, in fact there is not a strong trend in this pair, days are mostly choppy, and well nothing cool to be expected.

Anyway.. we can see 3 trades so far:

1) the first had a 4pips ideal stoploss, unluckly i noticed it with a few minutes delay, so my entry was just 2.7 pips below the ideal one, giving me a total sl of 6.7 pips (plus spread that is around 0.2 pips).
Trade closed a few minutes later for 7 pips (1:1 RR).

2) Nice trade with a perfect entry (sell-stop order), unluckly stopped out, -2 pips.

3) This trade too, had an ideal sl of just 0.9 pips!
Unluckly i entered with a market order (didn't have the time to place a stop-order), and got in 1pip below the ideal price.
This mean i had to use a 2pips sl!
Trade closed 10 minutes later for 10pips profit (1:5 RR, that would have been a 1:10 RR with a perfect entry).

4) (this one taken while writing this post)
Ideally a 1.7 pips SL trade, but once again my manual entri wasn't fast enough, and i entered 1.6 pips late.
This mean a SL of around 3.4pips instead of 1.7, trade closed a few minutes later for 5pips (1:1,something RR).

Results seems cute for now, with the day sitting at around +10%, and risking around 1-2% on each trade, the lotsize calculation for each trade isn't perfect because the entries are not perfect (delay due to manual execution), so.. some trade was a 1% risk some other a 2% risk etc.

Anyway, this is mostly a test, to see where the "problems" lay.

To be continued
Attached Image(s) (click to enlarge)
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  • #19
  • Jan 22, 2016 9:24am Jan 22, 2016 9:24am
Hi Tunera, your approach is very similar to an experiment I've started six months ago (link) which is done by using a modified version of Udine EA that I shared in that thread.
In particular starting sl is 10 pips and after 5 pips gain is moved to be, then it's never moved (i'm planning to manually close a trade when a 21-Daily Donchian Channel is violated, never happened until now).
Actually live result are interesting (link) , modified EA is running on 4 pairs (EU,EJ,GU,GJ) with 0.01 fixed lot size and actually I have around 1700 pips floating profit due to big downtrend on GBPUSD started in mid november in 2 trades.
By the way it's a pain to see the account slowly be drained (with equity hopefully growing), this is why this kind of trading approach is hard to be traded , a lot of little losses with very few (if any) big winners.

Regards,
Skyline
  • #20
  • Jan 22, 2016 9:51am Jan 22, 2016 9:51am
Quoting skyline
Hi Tunera, your approach is very similar to an experiment I've started six months ago (link) which is done by using a modified version of Udine EA that I shared in that thread. In particular starting sl is 10 pips and after 5 pips gain is moved to be, then it's never moved (i'm planning to manually close a trade when a 21-Daily Donchian Channel is violated, never happened until now). Actually live result are interesting (link)...
Hi, yes i see, during trending times it is "easy" to make good entries with high RR and win big.

The problem is when market is choppy up and down going nowhere, that's when maybe is better to just grab profits at 1:2 or 1:4 and move on.
Or even better, is just not trade at all, like today in EU, yes i grabbed some profit here and there, but it's really not worth the risk.

Better to focus on cross pairs and stock indexes..
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