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R:R Fallacy?

  • #61
  • Edited Jan 17, 2017 4:05am Jan 16, 2017 7:39pm | Edited Jan 17, 2017 4:05am
Quoting NaughtyPip
{quote} Look at the candle below, price has moved down but is. now moving up to make this hammer type candle - which is most likely to happen next, price makes new high or price makes new low? IMG_2002.PNG;2142625 {image}

Hmmm, let me do some ACTUAL calculations....

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I would say that based on the analysis of over 2000 daily bars for each of these 5 heavily traded pairs, you have roughly a 50% probability of price moving up or down after the occurrence of a High Hammer Up bar (BTW, the same is also true after the occurrence of a low hammer bar)...so... what's your point?
  • #62
  • Jan 16, 2017 8:04pm Jan 16, 2017 8:04pm
it's not about risk to reward, it's about risk to probability. loses are more important in the professional world than winnings. risk is everything, reward is arbitrary and completely based on the context. It's about risk to probability, period.
  • #63
  • Jan 16, 2017 8:04pm Jan 16, 2017 8:04pm
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My Threads: Trading is as simple as 1-2-3, Highest Open / Lowest Open Trade
  • #64
  • Jan 16, 2017 8:06pm Jan 16, 2017 8:06pm
jesus christ you're not seriously doing analysis on certain candle formations are you. Stop.
  • #65
  • Edited Jan 17, 2017 4:11am Jan 16, 2017 8:10pm | Edited Jan 17, 2017 4:11am
Quoting disker23
jesus christ you're not seriously doing analysis on certain candle formations are you. Stop.
Nope... I simply answered a question asked by NaughtyPip..
  • #66
  • Edited 9:45pm Jan 16, 2017 9:31pm | Edited 9:45pm
I would take none of those two trades... 10 or 20 or 30... or 100 pips SL, they are all THE SAME. It is a proportional law.

There are just TWO WAYS the rate moves in ALL PAIRS. It is the SAME MOVEMENT SYSTEM applied to ALL PAIRS. Smooth and zigzag.

Smooth is zigzag, too, but it is a "smooth" movement in a straight line, a short or not so short direction, with small to no corrections...
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While the zigzag is a small zigzag within a major zigzag movement, usually. The M1, they WIDELY TEACH you not to look at, because it is "useless", shows the deadly truth.
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If you get the direction right, in zigzag movement (usually within a small frame or range) there is a HIGH PROBABILITY your SL to get hit. The zigzag is the grid trading killer. If you do not get the direction right - it is all clear what will happen. In a smooth movement, your SL is likely to not get hit, likely, but not 100% secure, even if you get the direction right...

And timing? What about timing?

Most of the times, one has to get the direction right and maybe then (???) this SL idea will work in one's favour. In all other times, one's SL works well for the brokers and the bankers. Don't get down. At least you are making someone else happy.
Maadik Hugiis. IQ 69.
  • #67
  • Jan 16, 2017 9:35pm Jan 16, 2017 9:35pm
are you people serious?
  • #68
  • Jan 16, 2017 10:27pm Jan 16, 2017 10:27pm
Quoting NaughtyPip
I will start with a question. Which one of these trades would you take, or wouldn't you take based on the R:R, or would you take both? Edit: This has nothing to do with technical analysis, it is a thread about whether one R:R can be more profitable than another. a3b49039acaf48e8929d290379d8c315.png;2141833 {image}
Why buy high and sell low ?

Also, yes, this whole "R:R" notion is crap (does not work in the real world)
  • #69
  • Edited 10:27am Jan 17, 2017 8:39am | Edited 10:27am
Quoting davelansing
{quote} Hmmm, let me do some ACTUAL calculations.... Screenshot1.png;2142638 Screenshot3.png;2142642 Screenshot2.png;2142644 Screenshot4.png;2142651 Screenshot5.png;2142654 I would say that based on the analysis of over 2000 daily bars for each of these 5 heavily traded pairs, you have roughly a 50% probability of price moving up or down after the occurrence of a High Hammer Up bar (BTW, the same is also true after the occurrence of a low hammer bar)...so... what's your point? {image} {image} {image} {image} {image}

You are calculating whether the next bar will be an up bar or a down bar, based on the current bar. That isn't what I am asking and is looking too far ahead. Despite this, the test you did shows a slight edge in favour of what you thought I was saying. Up bars occurring on average 51.6% of the time after a high hammer up bar whilst down bars occurred 46.4% of the time. I guess the percent left over accounts for neutral bars. So there is a small edge that would probably get wiped out by commissions etc but still an edge.

Low hammer up bars on the other hand the results were more random and the pic I gave you was not a low hammer up bar. Low hammer up bars have a close usually near to the middle of the bar rather than the top or bottom i.e. no momentum in either direction.

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This daily candle has more than 7 hours left of activity. During the life cycle of the candle so far, the momentum was originally up and now the momentum is down, what is more likely to happen first, a break of the low or a break of the high?

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My point is newtons law applies to price http://www.forexfactory.com/showthre...45#post3630845
  • #70
  • Jan 17, 2017 8:42am Jan 17, 2017 8:42am
Quoting 9047
{quote} Hi NaughtyPip, I think you are coming the conclusion is that risk-reward is not a static e.g. the R:R evolves over the course of the trade.
Hi yes that is my conclusion and through exploring this it also brings along other conclusions like the importance of exit and the none importance of entry etc.
  • #71
  • Jan 17, 2017 8:55am Jan 17, 2017 8:55am
Quoting MoneyZilla
I would take none of those two trades... 10 or 20 or 30... or 100 pips SL, they are all THE SAME. It is a proportional law. There are just TWO WAYS the rate moves in ALL PAIRS. It is the SAME MOVEMENT SYSTEM applied to ALL PAIRS. Smooth and zigzag. Smooth is zigzag, too, but it is a "smooth" movement in a straight line, a short or not so short direction, with small to no corrections... smooth.png;2142735 While the zigzag is a small zigzag within a major zigzag movement, usually. The M1, they WIDELY TEACH you not to look at, because it is "useless",...
Banker/Trader... That earned you a nomination for POST OF THE YEAR!
My Threads: Trading is as simple as 1-2-3, Highest Open / Lowest Open Trade
  • #72
  • Edited 9:45am Jan 17, 2017 9:21am | Edited 9:45am
Quoting NaughtyPip
{quote} Let's say that you have a trade signal to go long at where the price is now at the pullback, and the sl will go under the very low of that chart and your tp is the gap close giving roughly 1 risk to 2 reward. And you know that this setup is profitable over a large amount of trades. Now, if you were't at the computer when you would normally enter, and price moves up by 1R, then you decide to enter later risking 2 to 1 reward, that setup will be just as profitable in the long run as entering earlier where you would enter normally. Meaning...
Edited:

It's an interesting way of looking at it, but perhaps it would better serve an "add-on" strategy with active trade management rather than going in as a late primary entry.
  • #73
  • Jan 17, 2017 9:49am Jan 17, 2017 9:49am
Quoting TooSlow
{quote} Banker/Trader... That earned you a nomination for POST OF THE YEAR!
It's truly a hilarious post!
It's in fear when people show what they truly value.
  • #74
  • Jan 17, 2017 10:48am Jan 17, 2017 10:48am
Due to leverage the reward should always be greater than risk. It's very simple math.
  • #75
  • Jan 17, 2017 10:59am Jan 17, 2017 10:59am
Quoting HeyYou
Due to leverage the reward should always be greater than risk. It's very simple math.
go on then give us the math/ reasoning
  • #76
  • Jan 17, 2017 11:06am Jan 17, 2017 11:06am
Quoting NaughtyPip
{quote} go on then give us the math/ reasoning
Ok.. if you lose 50 pips you need 50 pips to recover the loss, if you lose 100 you need 100. but leverage amplifies the loss in terms of ROI ,hence you need a higher reward to recover the loss.
  • #77
  • Edited 11:41am Jan 17, 2017 11:25am | Edited 11:41am
The risk to reward ratio (R:R), or reward to risk ratio, has to go hand in hand with a strategy that has been back tested and forward tested to test if the strategy is profitable. You then design a trading plan around the strategy. So, is your strategy profitable? If your strategy is not profitable then the risk to reward ratio untested with a strategy will be really good at loosing money.
Don't wait for the wind, take to the oars.
  • #78
  • Edited 11:44pm Jan 17, 2017 12:15pm | Edited 11:44pm
Ask any broker who are the most profitable traders/gamblers ?
  • #79
  • Jan 17, 2017 12:18pm Jan 17, 2017 12:18pm
Quoting HeyYou
{quote} Ok.. if you lose 50 pips you need 50 pips to recover the loss, if you lose 100 you need 100. but leverage amplifies the loss in terms of ROI ,hence you need a higher reward to recover the loss.
Leverage is totally irrelevant.

Of course If I lose 10% of a 100 dollar account to make 90 dollars, i have to make 11.11111% on my 90 dollars to get back to 100 - a low risk to high reward approach will have no advantage whatsoever over a high risk to low reward approach in recovering this loss.

Just because you are risking a small amount doesn't mean you have some advantage. Your small risk to large reward entry carries the burden of less probability of hitting tp, just as a high probability to small reward entry carries the burden of high risk. There is an inverse relationship between the R:R where neither are more profitable than one another.. There is no escaping this.

You need to think in terms of a SERIES of trades and not just 1 trade.

I have a strategy where i enter with 1 risk to 4 reward. My risk is small and my reward is high. Because my risk is small and reward is high I have low probability of hitting my target and many losses. My high reward makes up for this. On average I make 10% a month

I have a strategy where i enter with 4 risk to 1 reward. My reward is small and my probability is high. Because my my reward is small and my probability is high I have high risk and large losses. My high probability makes up for this. On average I make 10% month.
  • #80
  • Edited 1:45pm Jan 17, 2017 1:28pm | Edited 1:45pm
Quoting NaughtyPip
{quote} Leverage is totally irrelevant. Of course If I lose 10% of a 100 dollar account to make 90 dollars, i have to make 11.11111% on my 90 dollars to get back to 100 - a low risk to high reward approach will have no advantage whatsoever over a high risk to low reward approach in recovering this loss. Just because you are risking a small amount doesn't mean you have some advantage. Your small risk to large reward entry carries the burden of less probability of hitting tp, just as a high probability to small reward entry carries the burden of high...
Whatever
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