Discussion in 'Trading' started by hermit_trader, Nov 25, 2002.
Any guy making money using risk/reward ratio >1? How could you become profitable?
I'm not sure I get what you mean. Are you saying...
"Any guy making money when they make more than
What I mean is: would some one set 3 points for stop loss and set 2 points for target? I know it sounds stupid. But from my own experience, it is not uncommon.
Probably not a good idea-here's why. Most traders I know
are right less than 50% of the time. You here some claim
75% or 80%, but believe me, that ain't the norm.
Lets say you're good and average 50%. Okay, lets take 10
trades. You're stopped out 5 times, that's $750 on 1 ES
contract. You're right 5 times, that's $500. You're down $250.
I personally try to average a 3 to 1 risk/reward. That way, I
can be wrong 75% of the time and still break-even.
Hope this helps.
it does not sound stupid at all. you'll get more winners this way to offset your large(r) losses.
It just depends.
I can give you a system that will win 90% of the time, positive expectancy, but you won't trade it. That 1-in-10 times you take a hit it hurts, even if you are profitable in long run. Most people can't handle drawdowns well.
scalpers work with this ratio all day and some make good money at it.
I think there's something interesting here. Most of the accepted trading wisdom applies to only a particular very broad set of trading stats.
For example, "cut your losses and let your profits run" is clearly intended for the majority of traders who go for stats of the form:
Win:Loss % = 35-65:65-35
Ave Win/Loss = 1+
There ought to be profitable trading strategies that when you do the math(s):
W% * AveWin - L% * AveLoss > 0
where all the parameters can be very different from the norm. For example:
W% = 99%
L% = 1%
AveWin = 1
AveLoss = 95
Apart from the obvious psychological reasons....why not?
I'm not saying 90% can't be done, but your typical trader
won't get close to that.
Let's take Larry Williams for instance. Most traders would probably agree he knows what he's doing, right?
Well, currently in the World Cup Championships he has a 57.14% in the ES, a 40% in the
SP, and an impressive 60% in the bonds.
If 40% is the best he can do in the SP, why should I believe I can
do 70% or even higher. I'm not even in this guys league, and he's doing 40%.
I'm just trying to be realistic, here.
Note: I just noticed that's not Championship results, that's for
his adviser account, but I think the point's still intact.
In most cases, this is not a good ratio because you would need more winners than losers, definitely more on top of that. The R ratio closer to 1.5 seems to be good if your targets are bigger and closer to 2-3 if your targets are smaller.
Some methods however have this type of ratio, scalping for instance.
Separate names with a comma.