R:R 1:1

Discussion in 'Strategy Development' started by skippy, Oct 14, 2006.

  1. skippy

    skippy

    Perhaps some folks might find it useful to participate in a thread about risk/reward, about cutting your losses short and "letting your winners run." Or not run.

    I'll get the ball rolling here.

    I don't let my winners run. Never. The pain I experience in watching a profitable position turn to a losing one is just too unpleasant. I feel guilty about saying this, a less-than-competent trader, definitely not one of the smart set, "Uncool," in fact. But here's the simple truth:

    I trade the ES exclusively. The only way I'm able to be consistently profitable is with a 1:1 rish/reward ratio. Risking about 1.25 to make about 1.25. Sometimes less. Never more.

    I should add that "consistently profitable" means consistently profitable for all of three weeks. Better than nothing although, I'll be the first to admit, a swallow doesn't make a spring.

    As for my use of the modifier "about." Sound a bit squishy? Permit me to explain. I say "about" a 1.25 stop because I don't use hard stops -- I close the position when it becomes clear that my assumption at entry was incorrect at the get-go, or has been invalidated with the passage of (not very much) time. Often, this means the position is closed before it has hit my mental stop, which means sometimes I close for scratch or even a tick or two "accidental" profit. Sometimes, however, I will stay in the trade even if it has met or exceeded that 1.25 mental stop, if the conditions that led me to enter the trade appear to be still valid -- i.e., if the conditions are such that I would enter the trade at that moment, if I hadn't entered earlier. In that case, I'll allow the trade a little additional room in which to work. How much room -- again, I let the conditions dictate. I can count on one hand (out of hundreds of trades) the number of times when conditions have led me to a hold a position that has moved adversely by two points or so. Last week, however, I found myself in the surprising, and unsurprisingly uncomfortable, position of holding through a four point adverse move. The position did, however, eventually move in my favor (my methodology kept firing re-entry signals in the direction of the existing trade), and I closed for 1.25 points profit, my max allowable profit.

    So, that's why I say, when all is said-and-done, a 1:1 risk reward.

    Comments? Criticisms?

    Is this any way to make a living?
     
  2. my ratio is about 1:1 if not slightly worse, but i have a higher win % ratio. that suits my personality, while say 50% winners, and a 2:1 win: loss ratio doesn't - although that would return a very good performance for others.
     
  3. skippy,

    I would say that it is according to your methodology, time frame and how the day was trading.

    WinRate and "risk to benefit" ratio seem to be directly related, but the emotional side that you bring out would be helped by fully understanding the system that you are trading and thus your expectations.

    The fact that you use timestops, I find interesting and more advanced. Have you ever faded when your timestop reacted very strongly/quickly...? just curious? sometimes tracking the trades that went wrong, rather than trying to forget them, can open your world up to understanding your entries, thus defining your exits.

    Michael B.

    I don't let my winners run. Never. The pain I experience in watching a profitable position turn to a losing one is just too unpleasant.

    The only way I'm able to be consistently profitable is with a 1:1 rish/reward ratio

    I should add that "consistently profitable" means consistently profitable for all of three weeks.

    I found myself in the surprising, and unsurprisingly uncomfortable, position of holding through a four point adverse move. The position did, however, eventually move in my favor (my methodology kept firing re-entry signals in the direction of the existing trade), and I closed for 1.25 points profit, my max allowable profit.
     
  4. skippy

    skippy


    Yeah, but that's the thing. See, I'm not sure that the system has anything to do with it. I mean, clearly (or is it?), I'm not buying/selling breakouts. I'm buying/selling retracements -- pretty much like most folks. The thing is, I hate sitting there, waiting, watching a 1/1.25 profit jitter, fibrillate, then slam down to my entry, or worse. I just can't stand it. So I'd rather take my point and run, and lie patiently in wait for the next opportunity.

    My tolerance for this approach has been sorely tested during this past week, with a couple of entries at near bottom ticks, which I've closed for a point-and-a-quarter, then sat idly and watched the things scream along for another ten points or so. But that's the way it is, I guess. I'm not losing. I'm just having two point days on days that would be, if I'd stayed in, 10+ point days.

    Coulda, woulda, shoulda.
     
  5. excuse the late edits to my reply. (very bad habit, but they were done before your reply)


     
  6. me thinks 1/1 is just unacceptable. u gotta use humongous leverage even with a high win rate, that imho ain't a easy thing to achieve in futs. just doesn't justify the risk and capital commitment. i trade 'em at times but i am more of a stock guy and my typical r/r is at least 1/4.
     
  7. There are many ways and timeframes to buy and interpret the direction of the trend with the dips or rises ....

    also if you are doing what "most" do, then you might be losing....

    now if you posted that you were doing what most ET'rs do...well then that is another story :)

    Michael B.
     
  8. It is more than 1 on the risk side due to commissions. ie worse than 1 to 1.

    No it is not a way to make a living. Basically all you are doing is providing liquidity to the market so that larger and longer term players like myself, or the day/swing traders who do let winners run, can get in and out anytime with ease. Sorry, but it's the truth. --You need to know.:)
     
  9. Agree that 1/1 is unacceptable. Do not agree that humongous leverage would make any positive difference at all. In fact it would be a negative or even at best.
     
  10. i said if u have a high win rate. obviously if u can get more than 60% win rate it's absurd. but yeah, waste of time and money neverthelss.
     
    #10     Oct 14, 2006