Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Obsidian

What is Your Risk Reward Ratio?

Recommended Posts

The bigger the reward the lower the probability of the tp being hit.

The lower the reward the higher the probability of the tp being hit.

do you have a fixed r/r ratio or does it depend on the setup?

Share this post


Link to post
Share on other sites
The bigger the reward the lower the probability of the tp being hit.

The lower the reward the higher the probability of the tp being hit.

do you have a fixed r/r ratio or does it depend on the setup?

 

I don't have a fixed R/R Ratio, although my average loss is almost twice my average win.

 

The probability of the tp being hit is complex and in some cases will be indeterminate. One of the key factors involved is obviously whether a stop loss is also used. If no stop loss is used, the probability of a small target being hit sooner is greater, whether the probability of it being hit at some time is greater I'm not so sure. Whether the target is above or below current price is also a theoretical factor, as price is bounded below but not above.

 

BlueHorseshoe

Share this post


Link to post
Share on other sites

I do not use a risk:reward ratio...

 

If I have a reason to enter, I want to enter and at this initial point I do not know where I will exit

 

Once I have entered a trade, every tick and trade thereafter will have some consequence on the market outside of my control....therefore

 

My job is to stay in until I see a "reason" to get out...That "reason" may come 1 tick..10 ticks...100 ticks, whatever, after I have entered.

Share this post


Link to post
Share on other sites

depends on setup....and even in any testing I have done this is the same

then depends on what happens through out the trade.

I have tried the fixed r:r - just did not work for me as it did not make sense.

 

The one golden rule to stick by is never amend your stop and make it bigger.

Share this post


Link to post
Share on other sites
depends on setup....and even in any testing I have done this is the same

 

Although I also don't have a fixed r:r ratio at the time of entry, one thing that I always find useful when testing a strategy is to use a 1:1 ratio and then optimise this single value. If the optimal value doesn't produce impressive results then it is unlikely that there is any edge in the entry. It's a bit like saying 'if I buy when this signal occurs and I allow the market to move an equal amount N in each direction, then if the entry signal has an edge I ought to get better results than a coin toss for some value of N . . .'

 

This doesn't mean to say that the strategy couldn't be profitable as the edge can obviously come from an exit, but it is always useful to know from what element(s) of the strategy the edge is derived.

 

It is often argued that focussing on entries rather than exits is a sign of an amateur ("the exit is where the money is made"). The same authors often promote the idea of a very small r:r ratio (Van Tharp would be a classic example, who is pretty insistent that the reward must be many multiples of the initial risk).

 

The positive expectancy of the strategy I trade is derived mostly from the entry signals, however, and from an adaptive exit that calls for greater risk than reward. This flies in the face of popular advice. So I think that better advice than the overly prescriptive approach that many authors give would be something like:

 

Know your strategy. Understand from which elements it derives a positive expectancy. Work to maximise the dollar output from this edge through intelligent position sizing.

 

Hope that's helpful,

 

BlueHorseshoe

Edited by BlueHorseshoe

Share this post


Link to post
Share on other sites
...I have tried the fixed r:r - just did not work for me as it did not make sense...

 

I think the same...Besides market conditions change, you adjust your targets, stops accordingly...

maybe fixed r/r makes sense for scalpers but long term is different...

Share this post


Link to post
Share on other sites

The question of stop management seems to be a recurring theme for Traders Lab participants. I believe there is a misconception of how to use stops, and I would like to offer some thoughts on the subject.

 

Particularly in trading the E-mini with a small account size, stop management is critical. Because of the “noise” and the frequent poor range development during the day session, it is often the case of many stop-outs versus few winning trades equaling overall losses.

 

1. The purpose of a stop is to define risk. The general practice is to set a stop with a certain dollar amount or a percentage of the account or of the asset value of the account. Risk must be assessed in terms of market structure to be meaningful.

2. Once risk is established, it must be evaluated in terms of potential for the trade. I would suggest using a minimum 3 to 1 risk reward ratio as this would mean you overall would an show an acceptable profit if you were successful in one out of three trades. If you are not profitable in one out of three trades, then you probably need to look at your methodology or trading style.

3. If risk, as defined above, exceeds acceptable account parameters, then the trade must not be taken. Be patient, another opportunity will occur. But as long as you stick to trades with a potential of at least (and hopefully higher) three to one return, with risk safe parameters for your size account, you will stay in business and make good money. Keep in mind that the majority of successful traders that I know have around 50% or fewer winners over the long term, but their winners are much bigger than their losers. And losers are part of doing business.

 

Hope this is helpful,

Spookywill

 

 

Perhaps the biggest advantage of this approach is to encourage the development of more effective entry criteria and discourage “chasing” trades which are no longer attractive from a risk/reward prospective. This alone can turn unprofitable trading into making money.

Edited by wshahan
add on

Share this post


Link to post
Share on other sites
mathematically 10pips:30pips and 30pips:90pip have the same ratio..how about in reality? big sharks can eat you before you reach your goal

 

isn't that where context comes into play.....

sometimes, the odds vary depending on where in the scheme of things your pattern is occurring.

 

Which is why a lot of this is only really able to be looked at from a historical perspective -ie; to say "when I use this pattern it gives me this sort of R:R", to then set this in stone does two things - it means you will not ever increase the R:R ratio in your favour, and if the past does not represent the future then its more likely than not to actually diminish with time (???)

Hence why have a fixed R:R as opposed to a guideline of what to expect?

Share this post


Link to post
Share on other sites

Quote:

Originally Posted by Obsidian »

mathematically 10pips:30pips and 30pips:90pip have the same ratio..how about in reality? big sharks can eat you before you reach your goal

isn't that where context comes into play.....

sometimes, the odds vary depending on where in the scheme of things your pattern is occurring.

 

Which is why a lot of this is only really able to be looked at from a historical perspective -ie; to say "when I use this pattern it gives me this sort of R:R", to then set this in stone does two things - it means you will not ever increase the R:R ratio in your favour, and if the past does not represent the future then its more likely than not to actually diminish with time (???)

Hence why have a fixed R:R as opposed to a guideline of what to expect?

 

I am not sure I understand the above comment in the context of my post on defing risk in a trade. The three to one risk reward objective is the minimum objective, Often a 3/1 trade turns into a 5 to 10 times return over risk. But, as long as your trades maintain at least a 3 to 1 risk reward ratio, you will stay in business and make money.

Share this post


Link to post
Share on other sites
The bigger the reward the lower the probability of the tp being hit.

The lower the reward the higher the probability of the tp being hit.

 

Say what???

 

I think that the probability of the target point being hit vs. getting stopped out is a function of the types of trades one engages in. And if one is willing to set the risk stop far enough away from one's entry point, then the probability of loss on a trade with wide stops and a large profit expectancy could be a much lower than a short term trade with narrow stops. (Think day trader vs position trader)

 

i.e. deep pockets don't even use stops in a lot of cases...

 

It all depends!

Share this post


Link to post
Share on other sites
I do not use a risk:reward ratio...

 

If I have a reason to enter, I want to enter and at this initial point I do not know where I will exit

 

Once I have entered a trade, every tick and trade thereafter will have some consequence on the market outside of my control....therefore

 

My job is to stay in until I see a "reason" to get out...That "reason" may come 1 tick..10 ticks...100 ticks, whatever, after I have entered.

 

I too don't use fixed risk:reward ratio as a discretionary trader (no automation nor coded method). In my trading, fixed are counter-productive because the price action doesn't behave the same from one trade to the next trade. Thus, if the price action was the same "after" entry from one trade to the next trade...fixed risk:reward ratios makes a lot of sense when applied to every trade. In reality, price action rarely (arguably never) behaves the same every second, every minute, every hour, every day, every week, every year. Yet, I won't enter a trade where I believe the risk is greater than the reward. Also, my risk from trade to trade is not the same. Therefore, if the risk is to large for a particular trade...I don't take the trade even though that exact same risk was not too large for a prior trade I had taken.

 

Simply, my risk and my reward are adaptable to current price action. ) that's rarely the same from one trade to the next trade. Thus, one trade the reward may have been 40 ticks while risking 10 ticks and then the next trade the reward may be only 5 ticks while risking 3 ticks.

 

The markets or its "market context" determines our reward and that reward will be different every trade because the markets is different every trade "after" entry. Yet, we do have a little more control over the risk issue because it can be determine "before" entry in comparison to the "reward" being determined by the markets "after" entry.

Edited by wrbtrader

Share this post


Link to post
Share on other sites

I would suggest using a minimum 3 to 1 risk reward ratio as this would mean you overall would an show an acceptable profit if you were successful in one out of three trades. If you are not profitable in one out of three trades, then you probably need to look at your methodology or trading style.

 

This is the sort of very generalised advice that I was cautioning against in my previous post in this thread (see first page). There are plenty of ways to trade profitably using all sorts of R:R combos, and risk does not always have to be significantly less than reward.

 

Also, I am assuming that when you say '3 to 1' risk to reward you actually mean '1 to 3' risk to reward, whereby 1 unit is risked for a 3 unit reward (or alternatively a '3 to 1' reward to risk)?

 

While it is true that a 1:3 risk reward ratio would yield a profit if you were successful in 1 out of 3 trades, a 6:1 risk reward ratio would yield the same profit if you were successful in 7 out of 8 trades. You don't find many traders who will risk 6 units to make 1 (if you were scalping the ES with a $200 profit target, would you want your stop-loss $1200 away?) . . . But then you also won't find many traders who turn a consistent profit.

 

R:R ratios are a complex function of trading strategies; more often than not they are something that will arise organically from the development process and shouldn't need to be over-thought. Risk reward ratios cannot be prescribed for all strategies or traders in all markets in the way that you seem to be implying in your post.

 

BlueHorseshoe

Share this post


Link to post
Share on other sites
isn't that where context comes into play.....

sometimes, the odds vary depending on where in the scheme of things your pattern is occurring.

 

Which is why a lot of this is only really able to be looked at from a historical perspective -ie; to say "when I use this pattern it gives me this sort of R:R", to then set this in stone does two things - it means you will not ever increase the R:R ratio in your favour, and if the past does not represent the future then its more likely than not to actually diminish with time (???)

Hence why have a fixed R:R as opposed to a guideline of what to expect?

 

In fact I am against a fixed r:r since markets change, conditions change. Of course maybe this is different story for very short term traders. When you focus on a fixed value, you miss big movements..is what I learned

Share this post


Link to post
Share on other sites
The bigger the reward the lower the probability of the tp being hit.

The lower the reward the higher the probability of the tp being hit.

do you have a fixed r/r ratio or does it depend on the setup?

 

When I estimate a trade's RR I do it according to the closest significant supports and resistance. My goal is to take trade of RR ratio 1:2, but my minimum is 1:1.5 – I never go lower than that. It is important to understand that the RR is determined by the chart and not randomly. Traders tend to tell themselves something as "oh, I see than the SL is 100 pips down, let's my TP 200 pips above, because I need RR of 1:2"… this is clearly a mistake. Don't force the RR on the chart just because you feel that the trade looks great, let the chart tell you what is the RR.

Share this post


Link to post
Share on other sites

My trading success improved dramatically when I decided to take profits at 2 times risk on nearly all of my trades. The only time I veer from this is if price moves with dramatic momentum in my favor. Then I will trail closely until stopped.

 

Yes, I miss out on some good runs, but it doesn't matter. With this philosophy I can be successful only 50% of the time and end up well ahead.

Share this post


Link to post
Share on other sites

To me, R/R is heavily depended on the TF. the higher the TF the higher the R/R. i choose the 4h TF because it gives me higher R/R compared to 1h TF. i dont take trade whose R/R is below 1:3. to be frank, i know i am not going to be right all the time, so i only take trades that will take little from me when i am wrong and give me PLENTY when i am right. moreover.. just my way :crap:

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • Date : 26th November 2020.Brexit endgame remains in sharp focus!The USD has remained soft in quiet conditions, while global asset markets have seen little direction. The US Thanksgiving holiday has quelled activity. Europe’s Stoxx 600 traded near flat. Most stock markets in Asia gained, though remained off recent highs. The MSCI World Index is also off its highs, but remained buoyant and on course for a record monthly increase this month. Copper posted a new near 7-year high, and while other base metal prices were also underpinned most remained off recent trend highs. Oil prices saw modest declines after recent gains, which culminated in a nine-month high yesterday.The Brexit endgame remains in sharp focus!Sterling has seen limited direction, continuing to hold gains from month-ago levels of around 1.5% to 2.5% versus the Dollar, Euro and Yen. There is still no breakthrough in down-to-the-wire negotiations between the EU and UK, and there are lots of warnings of border chaos and, from external BoE MPC member Saunders, of long-lasting economic consequences in the event of a no deal exit from the common market.European Commission president von der Leyen said “we are ready to be creative” to get a deal while repeating that “we are not ready to put into question the integrity of the single market.” An Irish government member said that a deal was “imperative” for everyone.The steadiness in the Pound, the principal conduit of financial market Brexit sentiment, reveals that investors remain unperturbed. One explanation is the real money participants are sitting on their collective hands, positioning for an expected deal but waiting on concrete developments and details, while maintaining vigilance on the possibility of there being a no deal by accident.Short-term speculative participants, meanwhile, don’t seem to have had a fruitful time in trying to play the fatiguing myriad news headlines and endless deadlines that have come and gone. The latest and supposedly final deadline, is next Tuesday — December 1 — which leaves just one month for a deal to be ratified on both sides of the Channel. We expect to a deal to materialize at the last minute, just as the withdrawal agreement was seemingly pulled out of the hat at the ultimate minute a year ago. There may even be a fudged extension.Pressure on the UK government is intense. US president-elect Biden warned London that the scope for a deal with the US would be compromised if there is a return of a hard border on Ireland — which is what could happen in a no-deal scenario (the UK government would have the choice between maintaining a free-flowing border on Ireland at the price of breaking up the border integrity of the UK, and possible protests and even violence from loyalists, or breaking the EU withdrawal agreement, which would result in a hard Irish land border).A leaked Whitehall document warns of a “perfect storm” of chaos in the event of a no-deal in the Covid-19 era. There are also pressures on the other side of the Channel to reach an accord. While French President Macron has political incentive to put up a show of fighting over fishing rights, he is not likely to carry through on his threat to veto any deal as other key EU states don’t see the UK’s position on fishing as being unreasonable. France and other nations, and the UK, also need to maintain good relations for security and many other practical reasons.As for the market impact of a deal, much will depend on how narrow the deal is. The narrower it is, the bigger the negative impact on both the UK and EU’s terms of trade positions will be on January 1, particularly the UK’s.Always trade with strict risk management. Your capital is the single most important aspect of your trading business.Please note that times displayed based on local time zone and are from time of writing this report.Click HERE to access the full HotForex Economic calendar.Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!Click HERE to READ more Market news. Andria Pichidi Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Those who take quick and payday loans and refuse to pay them back are now hooked.   Normally, it is not a good thing to go into debt unless that is your last resort. We know that people are fond of borrowing and they seriously hate paying it back. Even when it comes to paying back what was borrowed, your creditor will become your enemy. Such is the nature of human beings.   Debtors don’t want to return money even when they eventually have means of repayment. If anyone borrows money and returns it, it means the person has a Godly spirit in him.   If people ponder the power of compound interest, they would stay away from loans. If you pay 1.33% or 1.79% interest per month on a loan, you will need to pay back roughly 16% or 20% per annum. And this will begin to compound as long as you don’t pay.   Most borrowers who are now in trouble have realized that the interest rates are eventually higher than the capitals borrowed. They realize that the creditors are using an indirect way to enslave borrowers (go and work for me, bring back the capital plus profits).   The banks themselves know that business environment is very tough and are now indirectly asking people to work with or spend the banks’ funds and bring the funds plus profits back to them. Many borrowers really have poor mentality and they don’t know the gravity of what they’re putting themselves into.   If a bank could lend out 1 billion USD per annum, it would reap a return of 150 million USD (at least on paper). Do you think they will forget about you if you owe them even a small amount?   Loans without collateral are now popular. But your collateral is your BVN – unless you don’t want to operate accounts again in the country.   I have heard people saying” Don’t pay to my Access Bank account again, but pay into my UBA bank account.” “Don’t send that cash into my GTBank account again, but send it to Zenith Bank.” It’s like postponing the evil day.   Ti iya o ba i tii je eniyan, iya nri nkan panu lowo ni (Yoruba adage). I literally means: If Suffering has not come to attack you, it means Suffering is currently busy with something. If you think you can avoid payment by abandoning the account you used to borrow money, you’re only postponing the evil day.   They cannot come for you when your debt is small, but the debt will begin to compound and compound till it would make sense for them to come for you.   BAD NEWS FOR DEBTORS CBN has given banks permission to deduct from funds a debtor has in another bank account. For example, if you borrow quick loans from FCMB and you abandon your FCMB account and you are now operating another account with First Bank, FCMB can make a request to First Bank, and the money you owed will be deducted once or gradually from your account at First Bank, without your permission.   Would you now keep money at home, so that bad boys will come to you to take their dues?   Borrowing isn’t a good thing, no matter how plausible it looks.   Profits from games of knowledge: https://www.predictmag.com/   
    • LITECOIN (LTC) SUSTAINS RECENT RALLIES, FACES RESISTANCE AT $90 HIGH Key Highlights Litecoin rallies to the high of $90 The crypto may be range-bound between $80 and $90 Litecoin (LTC) Current Statistics The current price: $89.20 Market Capitalization: $5,900,735,267 Trading Volume: $7,953,660,011 Major supply zones: $70, $80, $90 Major demand zones: $50, $30, $10 Litecoin (LTC) Price Analysis November 24, 2020 Litecoin has continued its rallies as the coin reached a high of $89.86. LTC price has been making a series of higher highs and higher lows. The upward move has been facing resistance at $90. On the upside, if buyers can push LTC above $90, the coin will rally above $100 high. However, if buyers fail to resume the upside momentum, LTC will be compelled to a sideways move for a few days. If the uptrend is resisted the coin will be range bound between $80 and $90. LTC/USD – Daily Chart Litecoin (LTC) Technical Indicators Reading LTC price broke the resistance line of the ascending channel. This indicates a further upward movement of the coin. The crypto is at level 74 of the Relative Strength Index period 14. It indicates that the coin is in the overbought region of the market. LTC/USD – 4 Hour Chart Conclusion Litecoin has made an impressive bullish run on the upside. Nevertheless, the retraced candle body on October 31 tested the 61.8% Fibonacci retracement level. It indicates that the coin will rise to a level of 1.618 Fibonacci extension level. This extension is equivalent to $70 high. Meanwhile, the price action is above the projected price level. Source: https://learn2.trade 
    • XRP/USD PULLS BACK AT RESISTANCE LEVEL OF $0.72 XRP/USD MARKET NOVEMBER 26 After the price retracement, it may resume its bullish trend and the resistance level of $0.79 and $0.88 may be reached. Below the current price, the level is found the support levels at $0.55, $0.44, and $0.39. However, the relative strength index period 14 is at 70 levels bending down to indicate a sell signal which may be a pullback. KEY LEVELS: Resistance levels: $0.72, $0.79, $0.88 Support levels: $0.61, $0.55, $0.49 XRP/USD Long-term Trend: Bullish XRPUSD is bullish in the long-term outlook; the crypto soars towards the north by the strong bullish momentum. The bulls’ momentum breaks up the resistance levels of $0.28, $0.33, and $0.36. The price has tested the resistance level of $0.79 on October 24. The price pulls back to retest the broken level of $0.61. Today, the XRP market is dominated by the bears and the daily candle is bearish. The price may increase further after the pullback. XRPUSD Daily chart, November 26 The two EMAs are located below the coin and it is trading far above 9 periods EMA and 21 periods EMA which indicate a strong bullish momentum. After the price retracement, it may resume its bullish trend and the resistance level of $0.79 and $0.88 may be reached. Below the current price, the support levels is found at $0.55, $0.44, and $0.39. However, the relative strength index period 14 is at 70 levels bending down to indicate a sell signal which may be a pullback. XRP/USD medium-term Trend: Bullish The bulls dominate the XRPUSD market. Immediately after the breakout from the consolidation zone, the bulls push the price high above the September high. It is currently pulling back at the resistance level of $0.72. The price is testing the support level of $0.55 at the time of writing this report. In case the just mentioned level does not hold, there will be a further price reduction. XRPUSD 4-Hour chart, November 26 The price has penetrated the two EMAs downside and it is trading below 9 periods EMA and 21 periods EMA. The fast-moving EMA is trying to cross the slow-moving EMA downside. The relative strength index period 14 is pointing down at 50 levels which connotes a sell signal and it may be a pullback.   Source: https://learn2.trade 
    • this is great news, good partnership and neymar is a big name along side mbappe and di maria. its gonna be a good season to watch
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.