3 to 1 win/loss ? Don't think so.

Discussion in 'Trading' started by tradersaavy, Mar 3, 2003.

  1. I've been daytrading futures now for about 3 months and there seems to be one major problem. I can recognize patterns, but there does not seem to exist often enough, a pattern with a 3 to 1 win/loss. The stops seem to be too wide and they seldom move 3 times these wide stops. So, I've been going to a 1m time frame to find tighter stops and, of course now I'm stopped out all of the time because the stop is toooooo tight and then the pattern takes off back into a favorable direction. I'll post some charts in a short while, I just wanted to see if anyone was interested in this thought or had some charts to post to show me the light.
  2. trendy


    Are you talking about a 3/1 gain to loss ratio, or a 3/1 winners to losers ratio? Because you don't need a 3/1 gain to loss ratio if your winners to losers ratio is high enough. Please elaborate.
  3. Magna

    Magna Administrator

    I think what you mean is a 3:1 reward/risk ratio, not a win/loss ratio. In any case, many people have this idea of 3:1 R/R as a necessary requirement before putting on a trade, and frankly I've never understood it. I guess it's a matter of personal style, but I'd much rather have a higher win ratio and a lower R/R. Ultimately all that matters is consistent profits.
  4. Who said you had to have a 3:1 ratio of wins to losses? You can make a lot of money with 1:1 if you are right a lot.

    It's meaningless to talk about win/loss ratio and ignore win/loss percentage. Generally as one goes up the other goes down. Time frame is important as well. The shorter the time frame you trade, the lower the ratio and higher the percntage, ie smaller winners but more of them. The key is finding the optimal balance.
  5. I trade the e-minis exclusively and have a $ gain:loss ratio of 2.55:1 on an approx 42% winning trade ratio.
  6. Arnie


    I would be curious to know if this figure is distorted by just a relative few large winning trades. What is your average? Thanks in advance.
  7. It's from my journal of trading the e-minis for over 7 months, a total of 1225 trades
  8. dis


    The 3-to-1 reward-to-risk ration is a benchmark for trend-following systems.

  9. Additionally, it seems to me that most 3 to 1 reward-to-risk setups are for swingtrading, not daytrading.

    Personally, I shoot for 2 to 1 (intraday) with a 75% win rate - not quite there yet but I know it is possible.

    Good luck to all.

  10. Magna

    Magna Administrator

    LOL, I wish you well but you'll own the world in no time with such a combination. That means regardless of the number of points (shares) you are going for, at that R/R and win rate your winning points (shares) will be a whopping 6X your losing. For instance, if you're playing the ES and putting on trades with a 2 pt target and a 1 pt stop, in twenty trades you will have 15 wins x 2 = 30 pts, and 5 losses x 1 = 5 pts, or 6X. Trading the q's with a .10 target and a .05 stop, in one hundred trades you will have 75 wins x .10 = 7.5, and 25 losses x .05 = 1.25, or 6X. For the rest of us mere mortals, when the R/R goes up (say, above 1:1) then the win rate comes down. Keeping them both up is the ideal, and I suppose there are some people consistently doing it at the levels you're talking about, but I haven't met them yet....

    Reminds me of a classic Gary B. Smith quote:
    "A good technician gets it right maybe 60% of the time. And a great technician, maybe 61% of the time."
    #10     Mar 3, 2003