Win rate is defined as #wins/#trades Therefore, you can only know your win rate after you place your trades. As a result, you cannot know which risk:reward ratio to use, before you place your trades. Win rate is a r. variable. Its value for certain time periods can range from 0% to 100%. When your win rate hits 0%, you get a drawdown, a big one. If the time period this occurs lasts long enough, your say bye-bye to the markets. The rest sound to me like attempts not to discourage newcomers enrlolled in a trading course.
If you've done the research necessary to develop a solid business plan, you have data demonstrating the average win rate of a given setup (or selection of setups) over time and through varying market conditions based on various R:R ratios. Your research may find, for example, that with Setup A, the average chance of a $200 per position minimum profit target being hit before a $100 per position maximum stop loss being hit is 50%. This tells you that the particular setup combined with the 1:2 risk reward ratio offers a profitable edge. If price is moving strongly in your favor and breaks through your minimum profit level, you can let the winner run further, but it wouldn't be necessary to do that to achieve profitability trading that setup. If you don't know this kind of information in advance, then you likely haven't done the research necessary to trade profitably. If you do know this kind of information and have developed a business plan, you then have to master the most difficult part of the equation which is the ability to trust and trade your plan every time Setup A appears. Otherwise you dilute the edge that was revealed through your diligent research. I've communicated with many traders on ET and only 5% of them had a well-defined trading plan and traded it without messing with it. This seems to correlate with the oft-quoted "95% of traders lose".
I suppose, what some call an "edge" I just call common sense. I'm kind of a student of the take care of your losses and your profits will take care of themselves school. Everything I have to show for myself is from the few times I didn't screw up by taking the profit and the market trended stronger, longer and farther than anybody ever thought it would or could have planned for no matter how much they had researched the whole thing.
Reading through this forum it's quite easy to see who the real traders are vs. who the "pretenders" are. I will spare the pretenders the embarrassment by not quoting them, but here are the facts: 1. It's a mathematical FACT that you don't need a trading system with a winning percentage of more than 50% to make A LOT of money trading. Just because the winning percentage of trades is 35% (or less) doesn't mean your risk of ruin is higher. If I have a trading system with a 35% win rate and a risk/reward ratio of 3 to 1 I will make much more than your 55-60% win rate with a 1 to 1 (or less than 1 to 1). Your "risk of ruin" math is flawed because you don't account for ALL of the variables. The key is to simply have winners that are bigger than losers by more than a factor of 1 to 1... then and only then does the winning percentage of trades matter. Stop peddling 7th grade math as proof of your OPINION. 2. Money management isn't complicated. You don't have to "size up" or "size down" during individual trades... unless you are talking about scaling into a trade that is moving in your favor. Constantly changing your position size during winning or losing streaks will ONLY HURT YOU. Sure, you may lose less while you're losing... but when you win you will also win less. This is the way to die a slow, painful trading death. Pick a reasonable risk amount for your account size and stick with it... changing it constantly will only cause you to LOSE MORE MONEY. Your position size should only change dramatically when the value of your account supports it (in either direction)... not on a trade by trade basis. 3. Trends ARE fractal. While it is harder to make money trading lower time frames, it's not impossible or a waste of time. Those who mention showing charts without a time frame attached and betting you can't tell whether it's a 5 min or Daily chart are correct. Just because you don't have the discipline to trade lower time frames doesn't mean they're not profitable. It's more likely that it's YOUR OPINION that they're not profitable because you either don't have a good trading method and/or the discipline needed to profit from trading a lower time frame. To those of you who want to argue with my post feel free, but understand you are just injecting your flawed opinions vs. facts. Learn to deal in facts or learn to live with a constantly empty trading account.
If you trade with a win rate less than 50+% your risk of ruin is guaranteed no matter what your R:R is. You can only delay the inevitable if you risk a small percentage of your account. All trend followers with a win rate of less than 50% are doomed. It only takes a few months of choppy market action to cause a drawdown of 50% or more if fully invested. If invested with leverage, ruin is inevitable and fast. Learn the facts before you end up ruined...This is simple algebra for high school students...
LTCM did not have a known expectancy. They had a model based on flawed assumptions. Trend followers have empirically designed systems based on real data from real markets. Trend followers took the other side of the trade when LTCM's directional bets didn't work out......
Unless i'm wrong (happy to be corrected) weren't they massively overleveraged at the wrong time? My point is,money management can never become less important.Otherwise why do we have a global crisis? Your argument appears to be the faster you drive the less important the brakes are