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What is your risk reward ratio?

  • #21
  • Feb 7, 2012 3:32pm Feb 7, 2012 3:32pm
I used to believe all this R:R shit, cut your losses & let your profits run crap. That may have worked in 1975 when the author of the book you're reading was in a trading pit but in todays market with huge volatility it won't work.
  • #22
  • Feb 7, 2012 4:05pm Feb 7, 2012 4:05pm
Quoting willf
I used to believe all this R:R shit, cut your losses & let your profits run crap. That may have worked in 1975 when the author of the book you're reading was in a trading pit but in todays market with huge volatility it won't work.
I don't think I'd make much (or any) money if I dind't use a fixed profit target and 1:1 RR. In my opinion about 90% of all the ' how to trade' rules are nonsense. It wasn't until I started to ignore what everyone out there, every book, every course, every rule told me that I started to make money. They say scalping doesn't work, picking tops and bottoms is suicide, a RR of 1:2 or better is the only way, the trend is your friend, avoid ranging days, trade only the higher time frames.

I do the exact opposite and it works tremendously for me.
  • #23
  • Feb 7, 2012 4:34pm Feb 7, 2012 4:34pm
Quoting Roofx
I don't think I'd make much (or any) money if I dind't use a fixed profit target and 1:1 RR. In my opinion about 90% of all the ' how to trade' rules are nonsense. It wasn't until I started to ignore what everyone out there, every book, every course, every rule told me that I started to make money. They say scalping doesn't work, picking tops and bottoms is suicide, a RR of 1:2 or better is the only way, the trend is your friend, avoid ranging days, trade only the higher time frames.

I do the exact opposite and it works tremendously for me....
I don't scalp but it sounds like we trade very similarly. I used to trade long term on the daily/weekly but it's so frustrating watching a profitable trade get stopped out at break even because you are trying to ride a trend.

I know have fixed SL & fixed TP with risk around 2% per trade. My profits have literally doubled in the past few weeks. I can't believe I didn't do this before instead of wasting so much time listening to others trying to tell me how I should trade
  • #24
  • Feb 9, 2012 8:34pm Feb 9, 2012 8:34pm
Quoting Razorman
You have described the problem very well. Price moves in your favour, now what? Do i move the stop, what if it comes back? All these question start to pop up. What i have noticed is the market will most of the time retrace after the initial move to pick off orders before moving on further. So if you move your stop, you are exposed. How many times have you moved your stop, the market comes back takes out your stop and then continues in the intended direction. If you want to capture the big moves you have to let the market retrace on you and after...
I have recently read a book that says something related to the topic. There are 2 basic ways.

[1] Take small profit and risk missing home run

[2] Let it run and risk getting stopped out

It really comes down to one's risk appetite and how much losses one can withstand. I would say both method works.

Taking small profits would mean a profitable day if you take that only trade in a certain day.

Letting a trade run give you a possible big reward of course is also valid, if you can stomach a possible series of stopped out trades before getting a home run trade.
'For the market to work, it needs people who think that they can beat it.'
  • #25
  • Feb 9, 2012 10:53pm Feb 9, 2012 10:53pm
Quoting willf
I used to believe all this R:R shit, cut your losses & let your profits run crap. That may have worked in 1975 when the author of the book you're reading was in a trading pit but in todays market with huge volatility it won't work.
Well said. Way different market today. I just draw trendlines. Then I know where and when to enter and when to TP. In and out. In and out. Works for me. Even if the RR is 1:1.
Time turns trend. - W.D. Gann
  • #26
  • Feb 10, 2012 8:32am Feb 10, 2012 8:32am
From this month's Futures magazine;

Most traders always should have a risk that is at least as large as the reward, otherwise they have to win 70% or more of their trades to be profitable. That is an unrealistic goal for most successful traders, and a delusion for anyone starting out.

If a trader uses a reward equal to his risk (1:1)-let's say two points for both-then he has to be right at least 60% of the time to make a profit. That is still difficult to do, but possible with experience.

If his reward is two or more times greater than his risk, then he can be right just 40% to 50% of the time to be profitable.

Because of the math, most traders should start out looking for trades where the reward is at least twice as large as the risk.... Al Brooks,Futures,Feb12,p28-29.
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #27
  • Apr 5, 2017 3:11pm Apr 5, 2017 3:11pm
Hello,

I use a scalping system where my risk i considerably higher than my reward, about 10:1.
My stoploss is today merely a precaution if the trend decides on switching direction againt my trade.

So far i've been using this system with a lot of success and i was wondering if someone here is doing the same, trading with a higher risk then the reward that is?
  • #28
  • Apr 5, 2017 3:52pm Apr 5, 2017 3:52pm
Because you never really know how many pips any move is going to give you ( though you have to have some idea ) I have learnt over the years to take any signal to trade provided it looks like the price will at least cover my risk. Provided you have the signal to trade, then always best to take it without worrying too much about risk/reward, and move your stop to BE pretty quickly. Of course it depends on the time frame being traded as well, but using a 10-15 pip SL as I do most of the time off of a sub minute time frame on an index or a fx pair that moves fast such as Dax and GJ, this can be made in seconds provided your entry is good.
  • #29
  • Apr 5, 2017 3:54pm Apr 5, 2017 3:54pm
Quoting sl89
Hello, I use a scalping system where my risk i considerably higher than my reward, about 10:1. My stoploss is today merely a precaution if the trend decides on switching direction againt my trade. So far i've been using this system with a lot of success and i was wondering if someone here is doing the same, trading with a higher risk then the reward that is?
I don't know how long you've been operating this strategy for, but to me it sounds like a recipe for disaster. That's just my opinion, so good luck.
  • #30
  • Apr 5, 2017 4:04pm Apr 5, 2017 4:04pm
Quoting cat
{quote} I don't know how long you've been operating this strategy for, but to me it sounds like a recipe for disaster. That's just my opinion, so good luck.
I understand why you say that. I know a lot of people that generally frown upon this kinda strategies.
My trading explorer is new so i don't have much data on it but i have backtested it kinda thoroughly (but you can never be sure)

Do you want to elaborate on why you think so?
  • #31
  • Apr 5, 2017 4:43pm Apr 5, 2017 4:43pm
Quoting sl89
{quote} I understand why you say that. I know a lot of people that generally frown upon this kinda strategies. My trading explorer is new so i don't have much data on it but i have backtested it kinda thoroughly (but you can never be sure) Do you want to elaborate on why you think so?
W8 for one bad trade then you teaching so many.. R:R.... LoL...
Trade fearless not careless...
  • #32
  • Apr 5, 2017 4:57pm Apr 5, 2017 4:57pm
Quoting AlastorFate
No doubt many traders will say having a good risk reward ratio very important without hesitation. Professional traders recommend at least 1:3 risk reward ratio. However, how many traders follow this rule consistently. Not the scalpers and probably a good number of day traders as well. Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in your desired direction. It brings uncertainty whether one should take profit or...
With all due respect, your question seem too simplistic. It's not the R:R ration that is important. IMHO, what is important includes the following:
How do you determine risk in your trades?
How to you determine reward in your trade?
What makes you think the risk is determined correctly?
What makes you think the reward is determined correctly?
How do you manage yourself while PA moves toward your risk and reward?
What PA movement falls within your expectations that the risk and reward remain valid target?
What PA movement would cause you to expand your reward targets?
What PA movement falls outside your expectations that will cause you to cut the trade short, whether you are plus or minus on the trade?
What PA movement would cause you to add to the position as it moves towards your target?
To say, "I only trade a 1:X R:R ratio", is kinda an empty statement. However, with the answers to the above, you've put your answer into proper perspective.
  • #33
  • Apr 5, 2017 5:06pm Apr 5, 2017 5:06pm
Quoting AlastorFate
No doubt many traders will say having a good risk reward ratio very important without hesitation. Professional traders recommend at least 1:3 risk reward ratio. However, how many traders follow this rule consistently. Not the scalpers and probably a good number of day traders as well. Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in your desired direction. It brings uncertainty whether one should take profit or...

Choose a risk reward ratio that suits your psychology. Mathematically, no R:R is better than another as r:r has inverse relationship with probability.

Alternatively you could choose to do away with r:r i.e. no tp, and exit the trade on reversal signal, or trail stop. IMO this is the best way as you will get some big runners.
Adriaaaaan
  • #34
  • Apr 5, 2017 10:05pm Apr 5, 2017 10:05pm
Quoting AlastorFate
No doubt many traders will say having a good risk reward ratio very important without hesitation. Professional traders recommend at least 1:3 risk reward ratio. However, how many traders follow this rule consistently. Not the scalpers and probably a good number of day traders as well. Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in your desired direction. It brings uncertainty whether one should take profit or...
RISK REWARD ratio is something that I don't understand.
Why would bother looking at it everytime want to take a trade?
I mean it's an unknown variable which will be known after the market move.
But what is known is the fundamental and market structure.
It is much more important to learn whether the market is about to make a U turn or continue it's path.
That is far more important than risk:reward ratio.
This is not investment/trading advise. Will not hold accountable for loss
  • #35
  • Apr 6, 2017 1:19am Apr 6, 2017 1:19am
For me i prefer to take a risk rewared ratio of 1:5 or more. Recently i managed to develop my own strategy which can capture this kind of risk reward ratio. Took me many months of trial and error to come out with my own strategy. Basically high risk reward ratio is possible but its not easy. U need to buy at the start of the trend. And u need to play with the smaller timeframe to keep the risk small.
  • #36
  • Apr 6, 2017 3:40am Apr 6, 2017 3:40am
Quoting AlastorFate
No doubt many traders will say having a good risk reward ratio very important without hesitation. Professional traders recommend at least 1:3 risk reward ratio. However, how many traders follow this rule consistently. Not the scalpers and probably a good number of day traders as well. Personally I am having issues with sticking to a good risk reward ratio in my trades. The market often likes to do stuffs like pulling back (sometimes stopping you out) after moving in your desired direction. It brings uncertainty whether one should take profit or...

Here is the thing ... if you set risk reward to 1:3 the chances are you have 3 times the chance of losing. I use 1:1 and look for setups that produce an edge that gives me a win rate of about 60%. Focus on the edge not the stop/target ratio.

I doubt most retail traders have any clue what their risk/return really is. A good metric which is easy to calculate is return divided by maximum draw down, RoMaD.

On stop and target size, anything less that 25 pips is probably not bothering with because of the proportional cost of the spread that eats into your edge.
I live entirely from the growth of my personal trading account
  • #37
  • Apr 19, 2017 4:36am Apr 19, 2017 4:36am
I am very defensive here! Right now I use only 1% risk reward ratio in my every single trade position! On the other hand, I use standard profit ratio in my trading (minimum 1:3)! That’s way, I don’t have any tension about my losing trade position! But unfortunately, before I was too much aggressive, and I lost my 1st 3 live trading account because of over trading lot size!
  • #38
  • May 19, 2017 11:22am May 19, 2017 11:22am
Right now, I am trading with a specific risk reward ratio! Because, I see vague risk reward ratio is always risky! In addition I have set here 2% risk reward ratio according to my trading plan! Low risk reward ratio is always helps me to avoid big losses in my trading! So, I don’t need to make any additional plan on my losing trades!
  • #39
  • May 19, 2017 7:10pm May 19, 2017 7:10pm
Quoting AlastorFate
What is your risk reward ratio?
It is whatever the market allows. Risk/Reward = MAE/MFE. If you don't have or know the MAE/MFE values of your selected trading method or approach, then understanding Risk/Reward is not possible.

Be flexible and adaptable depending on market conditions. You are not in control of the market. Develop ways to not take a position in the market and benefit from market movement in any direction. Be patient and wait for the market to come your way. Forcing a bad position is worse than taking no position at all. Be like water and flow with the market.
The Event Horizon
  • #40
  • May 20, 2017 4:44am May 20, 2017 4:44am
Go for a 1:1 Risk/Reward-Ratio initially ... Then starts trailing the stop-loss level as the market moves in the intended direction ...
Market is not random but unpredictable
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