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What's your TP? Fixed reward vs dynamic reward 5 replies

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Attachments: 1:1 Risk/Reward Frowned Upon?
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1:1 Risk/Reward Frowned Upon?

You know when they say that you should never trade without a stop loss? They're right, but I would also add that you should never trade with a take profit!
Why you wan't to limit your profit? Makes no sence. Use trailing stop and let it run.
If I read through the posts I think some do not realize what they are talking about. We all look at a price/time combination. Markets are moving and it is not in our hands what price we have in future. Market give us what it will give. So a risk reward discussion is to look at the market from a unserous point of view. The only what work is to have a system that respect the nature market is moving. Cut out trades that do not respecting by price and let trades run and exit if market not moving anymore.
Trading is over a long period and not only a few days. For me it make no sense to limit my trading to think in borders of risk versus reward.
Market is more simple as you think.
Carefully, well thought out placed entries in the market are just as random as me hitting buy or sell right now without opening the chart.
Closing the trade is also just as random.

Requiring anything less than 50% win rate is completely relying on the random variance of the market. Less than that, well... might be great if you are buying in a sustained bull market etc but I'd argue it's got nada to do with your strategy or RR ratios. This has been proven time and time again by history.

I think you just need to be happy with the story you tell yourself and if it makes money then it's the right story... for now at least but be prepared to open another book.

My average RR is currently 0.3 and my WR is always more than 80, normally 85%. Been doing this for some years and no one told me how or why to do it.

Some things you just have to figure out yourself.
It would be tempting to go for a high leverage and make quick money. If you want to grow your account, high-leverage isn't a good option as it can work against you, especially when your're starting out as a new trader. At 1:1 your potential gains are not larger than your potential losses. That's why most traders chose to risk less than what they expect to gain. Hence they choose 1:2 RRR.
Quoting PierreD
At 1:1 your potential gains are not larger than your potential losses. That's why most traders chose to risk less than what they expect to gain. Hence they choose 1:2 RRR.

I think that’s right. And (without them realizing) it’s actually quite a big part of why they nearly all fail. Good "first post", and welcome to the forum.
I think traders frown upon 1:1 sometimes see it as set in stone, but in my mind there are 2 versions of RR, the one you use as you place the trade (and where you place your SL and TP) and the one you calculate after so many trades, to see your stats.

e.g. I open a trade with a SL:TP of 1:1
Then, as the trade progresses, I might tighten up my SL, move it to break-even or even trail it in profit.
I could also close out manually if PA stalls.

So, although I used the frowned-upon 1:1 to start with, my stats after 100 trades could look more like 1:1.5 or 1:2. e.g. if half of my losers are break-even trades and all of my winners hit the TP, then my RR becomes 1:2.

Just a thought.
Also, the big trend trades returning RRs of 1:5 plus? Oh yes they are great and feel amazing, but not many traders have the nerves (or funds) to get through all the small losses to get there...

Smaller RR makes for a smoother equity curve imho, but yes it's boring as hell.
Unfortunately this is the new reality of trading. Gone are they days of 1/3 in fx and commodities.

It's the algos that are doing it. Every one is using them even the market makers and they can do whatever they want with price as soon as all of us are shaken out of the market with our ten points at best.

Those big huge moves are empty. The only ones riding those moves are the institutions and the few people that didn't care if their positions went into huge drawdown and withstood a huge reversal shakeout....by then you don't even know if you have the right trade nor does it even matter at that point.
Quoting sunny34
{quote} that is not completely accurate. risk-reward ratio does not dictate the probability of winning. It represents potential profit or loss in relation to the amount of risk taken. For example, 1:3 risk-reward ratio means that for every 1 unit of risk you take, you have the potential to gain 3 units if the trade is successful. This does not imply a fixed probability of winning or losing.
It took me 12 years to realize this. What a waste of time all these strategies were. Correlates exactly. I ran all R:R ratios with random entries on EurUsd from 2018-2024 https://www.forexfactory.com/thread/...5#post14800555 all those stats are averages from multiple random criteria.
I now use this in all markets.
EurUsd Trading Price Return This Year: 61.5%
I always only looked for strategies and systems that I assumed had a very good R:R ratio.
why, because I don't have time to mess around and waste time, so that at least DD succeeds in breaking even again..
the smaller the R:R, the harder it is to get a foothold.
time is money.
Quoting ChilledT
I think traders frown upon 1:1 sometimes see it as set in stone, but in my mind there are 2 versions of RR, the one you use as you place the trade (and where you place your SL and TP) and the one you calculate after so many trades, to see your stats. e.g. I open a trade with a SL:TP of 1:1 Then, as the trade progresses, I might tighten up my SL, move it to break-even or even trail it in profit. I could also close out manually if PA stalls. So, although I used the frowned-upon 1:1 to start with, my stats after 100 trades could look more like 1:1.5...
That's what I did here, moved the TP to the projected ADR high for increased profits, while also shortened the SL for decreased losses depending on price action. See my TE for full details on that account.

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If you trade like me, you'll be homeless and broke within a week.
TEXAS-2-STEP All Time Return: 18.4%
a)1:1= 50% -1 x 2 also 50% = 1

B)1:3 = 33.3% -1 -1+3 = 1 or 66% risk of another -1? Compared to A which has 100% risk in lot size but 33% chance better odds?

Not exact but you get the drift..
It makes little sense to talk about proper risk-return without taking into consideration the context in which one operates. In mean-reverting an identical R:R can yield a lot especially in prolonged congestion, at the same time it would be detrimental to let profits run. Another important factor is the capital available that can allow you to absorb losses while waiting for a possible big gain. Unfortunately, there is no right answer; it is usually experience that drives a trader to a certain choice instead of another.
Nature cannot be cheated - Richard Feynman
Quoting Fagin
a)1:1= 50% -1 x 2 also 50% = 1 B)1:3 = 33.3% -1 -1+3 = 1 or 66% risk of another -1? Compared to A which has 100% risk in lot size but 33% chance better odds? Not exact but you get the drift..
1:1 = 50% win rate
1:3 = 25% win rate
EurUsd Trading Price Return This Year: 61.5%
Quoting Ryan420
{quote} 1:1 = 50% win rate 1:3 = 25% win rate
As in +1 not breakeven
Quoting Ryan420
{quote} 1:1 = 50% win rate 1:3 = 25% win rate
In my opinion people should not base their trading based on winrate. Winrate has nothing to do with RR.
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VukispaceTickeScalperArbitrage All Time Return: 4,021.1%
Quoting Vuki
{quote} In my opinion people should not base their trading based on winrate. Winrate has nothing to do with RR.
See I thought there was a direct correlation, other wise why even have RR?
Quoting Fagin
See I thought there was a direct correlation
The correlation is inverse, not direct (but I think that’s what you meant, really, and if so you’re entirely correct ).


Quoting Vuki
Winrate has nothing to do with RR.
This (like so much else you've posted) is just nonsense.
Quoting Fagin
{quote} See I thought there was a direct correlation, other wise why even have RR?
Winrate is one of the most useless things on earth. Only gurus use it to attract freshs.

RR is more important since it show the result of each single trade but can also be combined to show complete account results.
Forex Trader | IT Infrastructure Specialist | Trading Insights & Analysis P
VukispaceTickeScalperArbitrage All Time Return: 4,021.1%
Quoting ccrkk10
Hello all. It seems that the trading community as a whole is widely against using a 1:1 risk/reward ratio and constantly preaches to aim for at least a 2:1 ratio whether it be on forums, youtube videos, chat rooms etc. I recently started thinking why is this the case? I personally come from a blackjack card counting background. At the very best counters will get a 3% edge over the casino (win about 53% of the time). Sports bettors are considered amazing if they can hit at a 55% rate and are legendary if they can get 60%. There are plenty of people...
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