Keep dreaming. I consider myself a very skilled trader with a knack for executing great intraday entries, but when I tried to go to from 1:4 (Max) to a 1:8 ratio the results were mediocre. It wasn't viable regardless of how I tried to slice it. Now i'm just grateful to achieve many 1:2, 1:3, 1:4 rewards with over 60% win rates. The nature of intraday liquidity seeking mechanisms simply won't allow that form of greed. If anyone disagrees with this, I would doubt their credibility as a successful daytrader. I'm just not buying into the whole retail 90% win rate/High RR cheerleaders here on ET.
"Keep dreaming" Funny cause that's how it is. Can't be dreaming otherwise you wouldn't be there. Or the architect is having troubles ... I am talking from my experience. Even though I don't pretend myself to be skilled but just a lucky one till my setups break. I myself was dreaming on huge reward to risk with a mediocre win rate (Antifragile). But I ended up making money with small winners and tiny losers. Selling Vol ... Mean Reversion. Lol ... "The nature of intraday liquidity". What I mistrust is people like you telling how well they know the essence, intricacies of markets ! Anyway. Let say you won't credit me for being a successful daytrader. Which I really don't care. I earn my freedom by trading. Not by talking philosophy of markets with you. Never said I had a high RR. Just said I am able to keep losses small or even make a few bucks even if wrong. Hey ! I get cocky & stupid too. I already took a 20% loss. That's what kill most of us. Being stupid. Hoping for more. Or simply Expecting.
Then you'll learn the hard way. The market mechanics simply won't allow for it. You may catch a few of those grand slams, but making a living doing it, yes, keep dreaming. That's not how probabilities work in this game.
If you want to elaborate on this "liquidity seeking mechanism" and the links with propensities. I'll make my best to understand. Even though it's purely for recreational purposes. Who knows ?
From the principles, you can simulate it yourself and perhaps really learn something. Current price is at all times the level where two parties last agreed to make a transaction. Trading is both directions seeking liquidity for their position changes, for which exchanges (hopefully) are designed to provide in a safe, just and efficient manner. Rational buyers want to buy low and rational sellers want to sell high. So if price goes up, it's because buyers can't find enough liquidity at lower prices and need to bid higher in order to get a long position (demand or lack of supply). If price goes down, it's because sellers can't find enough liquidity at higher prices and need to ask lower in order to go short/sell (supply or lack of demand). When one side have to yield over time/price changes, a trend forms, which is imbalance between demand and supply. Trend is hindsight analysis telling you demand was stronger (uptrend) or supply was stronger (downtrend) over time/price change. Of course, a trend might turn on a dime at any time. Even though buyers are bidding higher when price goes up and vica versa for sellers and lower prices, it doesn't mean this behaviour will persist for very long. However, for longer/stable trends, it is observed that they may persist for some more time. However, market efficiency is really how well trade transactions are facilitated, which is a big purpose of market liquidity: The better market liquidity the more volume are traded per time or price level. High volume zones may be congestion areas: many trades traded at relatively the same prices over high volume and often over some significant time. Volume can also change price action regimes, act as continuation signals and longer timeframe reversal. However, general volume over time is a sign of an efficient market, more trades happening in a zone, thus making price move less in one direction as long as that type of price action regime is dominating. This can act as a framework for understanding some of what's happening in the market and why. Of course, it's very much easier to classify market behaviour in hindsight than in real-time.
I didn't think it was a question of "trying" to get a high R:R, but rather a matter of identifying what appear to be low-risk entries. Beyond that, it's a matter of riding the market in your trade direction until it ceases to cooperate. Seeking in advance a 1:2, 1:4 or any other ratio for that matter is full-on prediction rather than reacting to what is. No?
True. The key is to develop a particular entry tactic that succeeds more often than it fails, take it without exception every time one sees it, then ride it for as long as it lasts. There's no way to determine the reward in advance, which is why the whole risk:reward thing is nonsense.
Ideally, yes. But "low risk" can also comprise a method that can discern quickly when a trade is likely to fail, thereby allowing a fairly tight initial protective stop level. Of course, a combination of the two would be best, but they are generally at odds with one another, all else being equal. So I think it comes down to finding a "sweet spot" along the continuum that is in line with both a suitable and well-honed entry method and the trader's appetite for risk. In my case, because I don't have too much faith in a market that is characterized more by uncertainty than probability, I prefer to limit my exposure as much as possible on any one trade. I understand that some traders let their trades "breathe," (i.e., go against them) but I'm not a fan of a lot of huffing and puffing.
Perhaps I misconstrued it a little bit. I was simply trying to debunk the idea of risking very little to make a whole lot. It's what we all want, but most here will agree that it's death by a thousand cuts. I've beaten it to death, and stopped looking for that free lunch years ago. There is no perfect level of comfort in trading. You're risking large sums to make larger sums. Regarding seeking R:R ratios. It can work if your testing can calculate every scenario side-by-side, showing performance of each. My performance monitoring of years/thousands of daytrades with active stop management has shown that 1:2, 1:3, and 1:4 closely even out, but holding a runner to stop me out underperforms. I'm actually very comfortable with a 1:2 ratio because the targets occur more frequently, and it reduces the chance of unanticipated exit slippage. If I have strong confidence in the price action, I shift upward into the higher ones. It's a discretionary decision that's hard to quantify, but improves performance. Frequency is a big deal. I'd kill to get my 1:1's anywhere close, but I gave up trying to supercharge win rates.
This is what I implied by "succeeds more often than it fails". If one knows exactly what he's looking for and exactly what he's looking at, he should know within seconds whether it's going to succeed or not. Of course, if he's using indicators, he'll have to wait longer than that, but that's the baggage that comes with indicators.