Risk to reward ratio ??

Discussion in 'Technical Analysis' started by niting, Aug 23, 2007.

  1. niting


    What is the ideal risk to reward ratio successful traders are using. When i use 1:2, market gives me 1:3 but i end up taking 1:2. Then next time i use 1:3, market gives me only 1:2 and i end up taking a loss.
  2. Depends on the system.
  3. Longer-term trading should have a higher ratio. Shorter-term trading can have a lower ratio combined with higher trading frequency to maintain profitability.
  4. I don't recommend using them unless you have in-depth statistics that tells you what type of ratio to use and when you should be using a different ratio for different types of market price action.

    For example, maybe your trade signal statistics for the morning trading session shows that you should be using a 1:3 ratio.

    However, maybe your trade signal statistics for the afternoon trading session shows that you should be using only a 1:2 ratio.

    Throw in some volatility analysis for different types of volatility market conditions...

    You could be using a completely different ratio for the morning and afternoon trading session.

    The worst thing you can do is to randomly select a ratio without doing any type of statistical analysis to determine what's suitable for your particular trading signal.

    By the way, my trading improved dramatically when I stopped using risk to reward ratios.

    (a.k.a. NihabaAshi) Japanese Candlestick term