Help with Risk Reward

Discussion in 'Risk Management' started by jennywestwong, May 28, 2021.

  1. Hi fellow traders, I have improved from a risk:reward of 10:1 with indicators to 3:1 with supply & demand price action over the past year. The thing is, when I even try to do 1:1, let alone higher reward than risk, the price movement easily touches my stoploss. I understand that higher reward:risk equals lower probability of winning, but I have done many hours of backtest and getting a positive expectancy seems very difficult unless the majority of trades have a perfect entry close to the reversal points. But in reality, with confirmation (candlestick/psychological) and slippage, you're often already a few pips away from the perfect entry point by the time the trade is executed. Whereas with limit order presets, it is not guaranteed for a fill (happens to me almost daily).

    I know that the majority of teaching materials/youtube tutorials cherry pick charts that can show a risk:reward of 1:5 or more to impress beginners so that they can upsell more courses/books. So I am curious to know if you personally can get a higher reward to risk on a consistent basis and if you can share some pointers on your setup such as timeframes, trades per day, order type, and how you are able to achieve that higher reward to risk.
    murray t turtle likes this.
  2. For higher rewards, you may need to increase the time frequency of your chart.
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  3. smallfil


    Do not be so focused on the risk to reward ratio. It is rubbish and I will tell you why. Nobody knows ahead of time which stock will give you a huge return. No matter the setups, it could still turn into a losing trade. A lot of times, you have stocks you get into and turns into big winners and you are just pleasantly, surprised. Others turn into losers. AMC I got into 05/21/21 and bought call options. Did I know it would turn into a big winner? Hell no. All I knew was the trade setup is aligned with the major trend, my risk parameters clearly defined with my total risk being the cost of the premium. Nothing to fear and no expectations. Closed my call options today 05/28/21 and got a 553% return over 6 days holding. Now, this is a windfall profit and it does not happen that often. However, I have returns of 100%-400% and my biggest was 600%. That is for holding the trade 1-2 months at most. Trade in the direction of the major trend and hold your position as long as the trend is intact. That is your best bet.
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  4. AR15


    dont focus on risk to reward. i have an 11 profit factor with ~80% 1:1 trades. you just need a high win rate and cut your losses early. when you focus on risk reward too much you end up setting stop losses in random places just to not risk too much. size down if you have to
    Screenshot 2021-05-28 102806.png Screenshot 2021-05-28 105705.png
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  5. SunTrader


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  6. Your risk reward is an estimate — it can’t be known until it’s occurred. What that means is that your method of estimating good trades is not that effective.
    murray t turtle likes this.
  7. %%
    a]Good answers here;
    for larger reward as noted all ready= larger/longer time frame.
    b]BUT @ the very end of the main trend, [not very often does main TREND end in stocks]it loses more, but thats life because the rewards average more......
    c+ d] cash dividends help hold.
    e]i dont regret taking an TQQQ daytrade profit in MAY, because i had an earlier tqqq swing trade profit; of course after i took the day trade profit '' could of had a better swing profit''/LOL
    PS I hate to mention this , but its true/Market Makers Edge book ''traders know they could lose it all, so dont trade with funds we cant afford to lose''
    I dont like losses but no such thing as a business with out exspenses. Some money in the bank helps but interest seldom is agood deal.
    I like limits for entrys; but as IBD founder notes ''never quibble over a quarter + miss the moves[stocks/ETFs] '' Good questions; Missing the move is a risk also
    smallfil likes this.
  8. smallfil


    Jennywestwong.....Lots of good points here from experienced traders. If you just adopt some of the suggestions, you will be a much better trader in no time flat.
  9. Tradex


    As you probably already know, trading is about making money in the long run, risk/reward ratio and winning percentage metrics have nothing to do with this goal, unless you meant something else.
    smallfil likes this.
  10. Dustin


    1. Longer timeframes.
    2. Scale into winners.
    3. Set targets.
    4. Have reasonable stops. (be willing to lose a bit)
    #10     May 28, 2021
    Master Pu likes this.