Menu
Sister Sites

Options

Bookmark Thread

First Page First Unread Last Page Last Post

Print Thread

Similar Threads

Technical Analysis Fallacy 63,535 replies

The Ultimate Fallacy in Technical Analysis 99 replies

The fallacy of Metatrader EA trading contests 19 replies

Statistical analysis fallacy 33 replies

Attachments: R:R Fallacy?
Exit Attachments

R:R Fallacy?

Quoting 9047
{quote} So if RR is useless how do you assess the each trade you make? p.s. your pessimism is far to entertaining for you to be on my ignore list.
Thank you, I am flattered I think..
1) Each trade is independent from the previous one
therefore
2) R:R cannot be preset but "comes out in the wash" - it's a statistic, not a driver.

Painstakingly calculating your RR when it is positive gives you that warm and fuzzy feeling that may be you are onto something... only to be proven very wrong after the next trade or two.
RR was created by Mr. Tharp so that he could sell books and speaking engagements...
How can you be certain or your risk-reward ratio when the outcome (reward) is a random event?. The risk can be known but never the reward. Therefore you can never rely on the current expectancy for the future. Mr. Tharp's work has the appearance of solid math and logic but is totally useless in actual practice.
Quoting Mingary
{quote} 1) Each trade is independent from the previous one therefore 2) R:R cannot be preset but "comes out in the wash" - it's a statistic, not a driver. Painstakingly calculating your RR when it is positive gives you that warm and fuzzy feeling that may be you are onto something... only to be proven very wrong after the next trade or two. RR was created by Mr. Tharp so that he could sell books and speaking engagements... How can you be certain or your risk-reward ratio when the outcome (reward) is a random event?....

... I agree with Mingary regarding the randomness of trade outcomes and thus the R:R, although, statistically speaking, you can get an approximation of an R:R, AFTER the fact, given a large enough sample size, and assuming that you manage all future trades in the same manner as your historical trades (unless of course you use a fixed take profit level that never changes). Other than that, determining a reward for any given trade is a guess...the only known metric is the risk...
Either ive missed it or i havent seen MAE/MFE brought up?
ALL ABOUT RISK TO PROBABILITY, NOT RISK TO REWARD. LOSES ARE MORE IMPORTANT THAN WINS, But that's just the successful 1% who happen to be professionals like me. This screenshot is of me accumulating the pound this morning, and my day is now over. I'm not being an asshole, but risk to reward is a JOKE, IT's all about following your plan, and having a repeatable process. Example: If I have a losing day and my Boss calls me (Which he willl)--he will say the following: "Rough Day, we're you following your plan? (Managing risk). "Yes, I was extremely disciplined but my Job is to manage risk, so when my stop was am average of 6 ticks, I lost very little." Compared to: "Rough Day, did you follow your plan?" "I deviated from my plan on several trades." "If you EVER deviate from your plan again, you're fired, okay." "Understood." Even if you MADE money deviating from your plan it's a bad thing you can and will get fired for it.
Attached Image (click to enlarge)
Click to Enlarge Name: FallingKnives_Long86b_TOPS_BOTTOMS_LIVE.png Size: 709 KB
Quoting disker23
ALL ABOUT RISK TO PROBABILITY, NOT RISK TO REWARD. LOSES ARE MORE IMPORTANT THAN WINS, But that's just the successful 1% who happen to be professionals like me. This screenshot is of me accumulating the pound this morning, and my day is now over. I'm not being an asshole, but risk to reward is a JOKE, IT's all about following your plan, and having a repeatable process. Example: If I have a losing day and my Boss calls me (Which he willl)--he will say the following: "Rough Day, we're you following your plan? (Managing risk). "Yes, I was extremely...
Should this not be obvious to everyone ? Always manage the down side.
Perhaps I am missing something.
BTW what is the capital on 1287.50 ?
Quoting disker23
ALL ABOUT RISK TO PROBABILITY, NOT RISK TO REWARD. LOSES ARE MORE IMPORTANT THAN WINS, But that's just the successful 1% who happen to be professionals like me. This screenshot is of me accumulating the pound this morning, and my day is now over. I'm not being an asshole, but risk to reward is a JOKE, IT's all about following your plan, and having a repeatable process. Example: If I have a losing day and my Boss calls me (Which he willl)--he will say the following: "Rough Day, we're you following your plan? (Managing risk). "Yes, I was extremely...
Well, for me, it's R:R, probability and trading the plan. So, mostly, I agree with what you are saying. My job is to manage risks while executing the plan, and I think the most important part of this is understanding and seeing risks. But the plan is meant to maximize returns, too, so you must have an idea what the possible "reward" can be, because the time to be trading is when the bankers are shooting for a target. But I really love your comments on executing the plan without deviation. If you can't follow your rules, then you have no rules. If you deviate from your plan, you have no plan. If you execute the plan and something goes wrong, you can blame the plan, but if you deviate from the plan and lose, you are the problem.

PS: I've been trading GBP crosses today, too. Time for breakfast!
Quoting GEfx
{quote} Well, for me, it's R:R, probability and trading the plan. So, mostly, I agree with what you are saying. My job is to manage risks while executing the plan, and I think the most important part of this is understanding and seeing risks. But the plan is meant to maximize returns, too, so you must have an idea what the possible "reward" can be, because the time to be trading is when the bankers are shooting for a target. But I really love your comments on executing the plan without deviation. If you can't follow your rules, then you have no...
I thought the bs was too much in here?? lol
Quoting NaughtyPip
{quote} I thought the bs was too much in here?? lol
LOL -- just thought I'd spread some of mine around here. Sorry, I will now move on. Good trading!
Quoting disker23
ALL ABOUT RISK TO PROBABILITY, NOT RISK TO REWARD. LOSES ARE MORE IMPORTANT THAN WINS, But that's just the successful 1% who happen to be professionals like me. This screenshot is of me accumulating the pound this morning, and my day is now over. I'm not being an asshole, but risk to reward is a JOKE, IT's all about following your plan, and having a repeatable process. Example: If I have a losing day and my Boss calls me (Which he willl)--he will say the following: "Rough Day, we're you following your plan? (Managing risk). "Yes, I was extremely...
what?! your boss told you to trade to DM only cheeky boss. should be letting you go for some more pips..

P.S joke.
It's in fear when people show what they truly value.
Hi NaughtyPip, sorry my english not good, btw I make plan have to entry 40 times (it my samplesize), since Oct 2016, I have trying to do it paper trading in my trade explorer with R:R 4:1, the in progress result is Im still survive hehe

I actually more familiar with this ...

Attached Image (click to enlarge)
Click to Enlarge Name: Trade 1 or Trade 2.jpg Size: 26 KB
We have to be rigid in our rules and flexible in our expectations
Quoting Mingary
{quote} Should this not be obvious to everyone ? Always manage the down side. Perhaps I am missing something. BTW what is the capital on 1287.50 ?
It SHOULD be obvious to everyone, but 99% have no idea what they are doing hence the + 90% fail rate. It's not only that, its the key realization that winning means nothing, and Loses mean everything. Anyone can click a mouse, but controlling the only two things you can; when you get in, and most importantly where you get out when you're wrong. I can tell you personally that the same thing happens everyday: the big boys flush out retail traders by trapping them and luring them to be on the wrong side of the market. It's the same thing, over and over again in every instrument (NOT regular forex--retail taders don't even get access to the real FOREX market, hence your broker can freeze your screen, and has server side access to your machine giving you a synthetic market.). futures specifically, where you can read VOLUME--ORDER FLOW. In the pic i posted the chart is just for reference, I read my DOM/ the tape to make decisions. Account size is ....over 170k.
Quoting Mingary
{quote} Thank you, I am flattered I think.. 1) Each trade is independent from the previous one therefore 2) R:R cannot be preset but "comes out in the wash" - it's a statistic, not a driver. Painstakingly calculating your RR when it is positive gives you that warm and fuzzy feeling that may be you are onto something... only to be proven very wrong after the next trade or two. RR was created by Mr. Tharp so that he could sell books and speaking engagements... How can you be certain or your risk-reward ratio when the outcome (reward) is a random event?....
Dead right. For me its all about analysis of losers to refine entries and find new opportunities... my losers have been my best source of data to help me make money more and make it consistently. Looking at RR in terms points/pips the risk is spread over and working to minimise that is pretty much a traders job.

Have great weekend ... its been snowing nicley here so there is only one thing to do this weekend!
Quoting disker23
{quote} It SHOULD be obvious to everyone, but 99% have no idea what they are doing hence the + 90% fail rate. It's not only that, its the key realization that winning means nothing, and Loses mean everything. Anyone can click a mouse, but controlling the only two things you can; when you get in, and most importantly where you get out when you're wrong. I can tell you personally that the same thing happens everyday: the big boys flush out retail traders by trapping them and luring them to be on the wrong side of the market. It's the same thing, over...
So your saying ECN/STP brokers are non existent ? Instead it's just the brokers way of offering such low spreads ?
Learn, a forex trader must, unlearn and relearn he will.
Quoting COGSx86
{quote} So your saying ECN/STP brokers are non existent ? Instead it's just the brokers way of offering such low spreads ?
I'm speaking only in regards to futures, or a regulated exchange. Forex 'Volume' is a complete joke, and they have both server and client side access to your machine so they create a synthetic market for you which in reality, isn't even the real FX market. Oh, and I'm definitely not saying that forex brokers dont do this constantly to FX traders, but its much easier for them and a complete joke. What is done on the professional level in regulated markets is just common place, taking out stops to create liquidity etc. It's normal, obvious, and fair. Brokers having client side access and being able to freeze/ change your price feed is absurd and why its unregulated. But in real trading its the name of the game, period.
more pound accumulating based solely on reading my DOM. <3
Attached Image(s) (click to enlarge)
Click to Enlarge Name: p1.png Size: 429 KB
Click to Enlarge Name: pfinal.png Size: 427 KB
R:R is everything. Not risk reward, but Reduce: Risk
0 traders viewing now