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# High risk low reward but

Discussion in 'Trading' started by gobar, Dec 18, 2010.

1. ### gobar

wining chances are over 90 %

my question is it worth to take risk and trade it? i currently doing paper trade and it is working like charm but if there is another flash crash who knows what will happen...

2. ### HighSea

I had an automated system that was about 90% win-rate with the risk 3 times as much as the reward. I dropped it because I didn't feel comfortable with the fact that I needed to win three times to make up for one loss.

Now I've settled on 50% win-rate with the reward being at least 2.5 greater then the risk.

3. ### goodgoing

It don't mean anything. Expectancy is equal to win rate x average win + loss rate x average loss.

If win rate = 0.9 and Expectancy is equal to to 0 (break-even) then

0.9 x average win +0.1 x average loss = 0, which means that

(average win /average loss) ratio must be greater than -0.11

which further means that if you have many small wins but once in a while a big loss you probably won't be making any money.

4. ### Redneck

How high is âhighâ riskâ¦.

Multiple of each winning tradeâs profit

You whole account

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Simplified example (because the math worksâ¦ and I prefer simple)

If youâre winning a dollar â 90% of the time = 90 dollar profit

If you lose 5 dollars â 10% of the time = (50 dollar loss)

You net 40 dollars â if wins/ losses are somewhat distributed (and not factoring commissions/ fees)

Nowâ¦, ifâ¦, butâ¦, that 10% comes back to back (which is very possible) youâve lost 100 dollars, OR more, before making a dime

Hellofa drawdown imoâ¦, not to mention the mental toll it will impart on you

Again how high is âhighâ (a rhetorical question for you are the one who will live or die with it)

Also notice Iâm not asking you how much you're winning â because it doesnât matterâ¦

The wins will never bankrupt youâ¦, the loss(es) will

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May be worthwhile to discuss win expectancy â but I canât really say for sureâ¦ I donât think, or trade, that way

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fwiw â My opinion is; Trading this way is a disaster waiting to happen

But you know how opinions go - just like "A" holes... Everyone has one - and they all stink

RN

5. ### Nine_Ender

Better to get high risk high reward with some diversification or hedging of the risk. I don't believe low reward is worth putting your capital on the line in a high risk fashion.

The 90% probably is short term market conditions, which can change overnight and suddenly your "at risk" capitals gone. Need to make good money when the going is good to make up for the inevitable drawdowns.

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