Would you ever trade a high probability, high risk method?

Discussion in 'Trading' started by clambill, Oct 13, 2008.

  1. Lets get real.

    Most people trade for a rr of 2:1 or better and a lower win ratio. Its the common wisdom.

    What do we know about common wisdom: it's commonly wrong.

    So if you can find a strategy with 80% to 95% win ratio and a sub 1:1 rr then one good thing is most people will be doing something else. I ran one once that closed 2 or 3 winners a day but only lost about every 3-6 months. One of the best things about it was that slippage was usually positive. Market conditions changed but it was good while it lasted.
     
    #21     Oct 19, 2008
  2. AAA30

    AAA30


    Good post, there are so many ways make it in this game and some time it is best to challenge your convictions. 1:1 or .XX:1 r/r ratios can be very profitable when you can manage the win rates. Also higher frequency trades are more approprate for lower R:R ratios.
     
    #22     Oct 19, 2008
  3. True beauty is achieved when probability is above 50% while Risk:Reward surpasses the 1:2 mark.
     
    #23     Oct 19, 2008
  4. solyaris

    solyaris

    0.8 * 1 - 0.2 * 4 = 0 so no.
     
    #24     Oct 20, 2008
  5. Pyramid.

    Seriously, don't trade this system. No matter what you do, you will end up losing with it.

    PA
     
    #25     Oct 20, 2008
  6. 50_Bip

    50_Bip

    The secret is to bail out before you take the max drawdown. Money management is everything with income trading, just like trading stocks,forex, etc. If you limit your losses to 2x your potential gain, the math works out more like:

    80% or 4 out of 5 times you make $1 = $4

    20% or 1 out of 5 times you lose = $2

    If you are slick though, you can limit your losses to 1x your potential gain. Capital preservation 101.

     
    #26     Nov 5, 2008
  7. I trade a system with a 2:1 risk to reward ratio. Obviously, there have to be more than twice as many winners as losers in order to be viable, which there are. It is 100% automated (trades the YM).
     
    #27     Nov 5, 2008