The Problem of risk/win ratio & time risk !!!

Discussion in 'Risk Management' started by HATEtheRisk, Aug 22, 2011.

  1. The Problem of risk/win ratio & time risk !!!

    Hi traders,

    i am interested what do you think is the best realistic risk/win ratio per trade. Starting from 1 : 1 = risk 1 get 1.
    And whats the best time risk ???

    that all independent of your success rate.

    risk/win ratio

    Whats the minimum 1 : 1 or 1 : 2 ? Whats the maximum 1 : 3 or 1 : 6 !!!
    Well, of course that depends of the strategy you trade, but 1 : 2 should be the minimum.

    For the maximum, you always should allow the market to give you the full potentional move. But what means that ? Never use a Exit Limit Order, just let the trade go until your Exit Situation appears or use a Exit Limit Order with for example risk/win ratio 1 : 3 and be happy. ???

    Time risk !!!

    With time risk i mean the risk you take until you take out the risk
    (bring it to breakeven) with a trailingstop or with take profit of a part of your position.
    The question is, when to take out the risk.

    For both problems there isnt a perfect solution, you have to find a way that fits both problems.

    My solution !!!

    my minimum risk/win is 1 : 2 per trade and i allow it to get to a maximum of 1 : 6, depends of the market situation.
    That is allright for me.
    Of course there are situation i would be happy if i got out of my position earlierer, but thats the costs i have to pay.

    my time risk is my biggest problem, because the fucking market always moves in another way to fullfill its patterns.
    I just want a perfect clear straight move to certain level, so that i can take out my risk and not get stopped out after that.

    On the other hand, when the market moves in cycles (and i have took out the risk) i will get stopped out and after that the market goes on in my trade direction, but i am out and cant get in again, because the risk/win ratio would be to bad.

    I know the only way is to decide for one strategy and accept the costs i have to pay with the possible profits i could have made with an other Exit Strategy.
    Just choose the best average strategy and be happy about that.

    What do you think ??? What are your ideas ???

    Thanks and good trading.
  2. My system begins with analysis. Analysis leads to belief. And belief leads to the execution of the strategy. The strategy is executed with only EMA's which I refer to as support lines when the price is above them. I believe there are three basic kinds of market conditions, and my strategy depends on which one I believe I'm in. Am I in...
    1. a trend
    2. a counter-trend
    3. a counter-trend within a larger counter-trend

    Once I establish the belief, I select the corresponding strategy.
    1. Buy, set the stop, and follow with a stop behind a loose support line (the one I used to buy), add more to my position at subsequent bounces off of the support line. Move the stop to a tighter support line when signs appear for the end of a move, exit automatically when it's broken.
    2 &3. Buy, set the stop, and follow with a stop behind the tighter support line. Do not allow retracements.

    The entry strategy is the same for all of them. Enter a few cents above a support line with a stop a small margin below it. If I'm wrong, I lose small. If I'm right in any respect, I win. If I'm right about the move, but wrong about the belief, I'll win small. If I'm right about the move and right about the belief, my win will be the maximum available.
    Using EMA's also answers the Time Risk question. When the EMA used for an entry rises as the price rises, you know exactly when you will be at a break even; when the EMA is that much above your entry.

    Here are some EMA's as an example (attached). Download it and follow along. Let's say I enter at the blue line. I'll be at a break even by about the first (4) when the blue line rises to that level.

    After the first retracement at the circled 2, I move the stop to follow the red line and pyramid the trade. At circled 4 I pyramid again. Later, after circled 4, I get an indicatin that this move is coming to an end. I don't know when, but just that it's happening. So I move the stop to the green line. Just after the peak, it closes my holdings. That's a good trend trade with no known maximum reward. I could have missed a lot by setting an upper limit.
    Now go to the placed marked Circled B. Let's say I get in going down and I believe it's a counter-trend. I enter short at the red line, break even by (2), and then move the stop to follow the green line. It sells automatically. In a counter-trend I don't know how far it will go, so I don't hold through any retracements. There is no maximum win, just minimum win; that's a the line of my choosing according to my analysis.
  3. Is this indication signalled by the green ema having crossed under the red ema?

    Or do you use some signal other than the emas to get short?

  4. No, sorry. I use MACD's to determine the likely direction or condition. I just use the EMA's to follow the trade. They work much more consistently than trailing stops or some other method for me. I only use EMA's, though, after the technical analysis is already done and I've come to a conclusion and I'm ready to act on it.
  5. J.Joseph

    i understand your EMAs technique. But i dont like it.
    Of course it looks perfect to trail the stop in this way, but you could do this also without Moving Averages, just trail the stops after every fullfilled retracement.

    The problem in this situation is that the markets try to shake you out at exactly the levels where you have your stops. Not everytime but it happens often enough.

    Here is a pic (attached), what i mean.

    What do you do then ?

  6. bone

    bone ET Sponsor

    We allow the specific spread position's 20 day trading range and historical vol dictate the position's lifespan in terms of holding period. There's a big difference in holding timeframes with an RBOB Crack Spread with 93 % vol and a 210 tic daily trading range and a GE Z1-Z2 spread with a 7 tic daily trading range.

    My advice is to let the trading instrument's characteristics define the time risk ( and your profit and stop/loss levels for that matter ) - don't insist that a horse learn to swim underwater in other words.
  7. I get kicked out with a WIN. Then I get back in and do it again. One long trade turns into two shorter ones. The first one of a moderate WIN and the second one slightly larger WIN. I'm having trouble seeing the problem with winning. The goal is to make the bank account get bigger, not to stay in as long as possible.
    If you wait until AFTER a valley is created to move the stop, you risk a full retracements and will often times be taking much smaller wins (or break-even or loss) than that moderate win that was captured when the market shook me out. Besides, how do you know when a retracement is "fulfilled?"
    Every time you allow a retracement and capture a break even or loss when you're wrong, I'll be wrong with you and capture 10% (trading options). The number of times I capture 10% doesn't bother me because about one time in three I'm not shaken out and I take 70% or more. And other times I can just get right back in at a lower place and try again.
    I'm not naive enough to set a stop directly on an EMA. I know about margins of error. In general, my experience shows the price will continue up within 30 cents of it, plus or minus. So when I buy, I buy 30 cents above, and the stop goes 30 cents under. I really don't care if I'm wrong. I'm not wrong every time. I don't care if I get shaken out. Those are still wins. And when I don't get shaken out, they're BIG wins. Make sense?
  8. H-T-E t-- Risk;
    I hated the losses, but no such thing as a business that has no losses[business exspenses].

    I also prefer {orderly} ''perfectly straight moves/trends'';
    but with enough years of trend study, corrections can be acceptable. PTP[parabolic time price} can help, with discretion.

    As far as atrend with a ''perfect move'';
    consider daily candles, & substitute for ''perfect'',
    , '' mature move''
  9. Good morning,

    thanks for your replies.

    so you go in again in the main trend, after you ve been stoped out.
    Thats exactly the point, what i dont like, because then i take the same risk another time for the same possible profit. Thats not the best risk/profit managment, dont you think ? Sure i always try to over perfection my strategies, cuz i am a perfectionist. But you know, when it comes to live trading the only thing i have are my over perfectionisted strategies, they keep me out of trouble.
    I just look for the best situations, trades.

    Of course it depends on how much value a trader gives to his trade, i mean if a trader have every day 2 - 5 Setups to choose or 2 - 4 Setups a week, whatever timeframe he trades. Or, if he just have 1 Setup a week to trade.

    So if i have a lot of Setups to trade, to choose from in the same time, i can switch a not perfect move/trade, to a better one and i have also have made money with the not perfect move/trade.
    Instead of go in again on the same setup, after beeing stoped out. So my risk/win probabilities are much better. Of course this is a lot more work to do, to always have so much of trade setups on your watch list, and choose the best, decided of the starting setups probabilites until how the setup moves.
    murray t turtle

    i think every successful trader have to choose his own defense strategy. I think there is no clear perfect strategy that says here is the point where its best to do this and that, there will always be situations where it would have been better with another strategy.

    Only the best average strategy counts. that means, how much can i possible win and how much can i possible loose after a certain time.

    It was very difficult for me to find the right way.
    But i finally decided that it is more important for me to minimize the losses than maximize the profits.

    Because i always say, if there are no losses the profits will come from alone. I always try to achieve a business situation with no risk and good profits. Yes there is risk, but i can pull it down to a very small time factor in relationship to the price momentum move.
    That means, so long the price momentum move is on my side, i accept to risk money, when it starts to end i should take out the risk.

    I decided for a way, to take out my risk, as soon as possible, at least when the perfect move ends. And i still have enough success probabilites, that the price moves to my minimum target and over that.

    The conclusion is that i pay possible profit for having a lower risk.
    Thats the time risk factor.

    My results are very good, i like it. For a perfectionist. : -)
    Almost every trade i make, i make profits, the minimum profit i wanted to make, and sometimes circa 40% i make more and circa 20% i make a lot more.
    And if i loose (i hate it too), i always loose smaller than i win.

    Fucking Risk

    Thanks and happy trading.

  10. J.Joseph

    there are also situations where i go a second time on a trade.

    See pic (attached).

    But only if trade 1 wasnt stopped out. If trade 1 was stopped out, i switch to next trade. Maybe this makes no sense, but i like it.

    If the trend is strong i will not be stopped out and i have a little pullback and the overall energies are right i can go in a second time, if the price level is right.


    #10     Aug 25, 2011