I am trying to understand the risk/reward ratio over a series of trades. To keep things simple, using my custom indicator, I might get 50 signals/trades and each trade uses a stop loss of 10 pips.
25 of the trades make some kind of pip profit level, say 30 pips each.
25 of the trades hit their stop loss of 10 pips.
The 50 trades bagged 25 x 30 pips, so, 750 pips.
Here is the real question! :)
Have I risked 50 trades x 10 pip S/L, so 500 pips to make (25 x 30 pips) 750 pips? so 1:1.5 R/R
or should I only consider the pips of the losing trades relative to the pips from the winning trades, so,
25 x 30 pip = 750 pips relative to 25 x 10 pip (S/L) = 250, so, 1:3 R/R ?
This seems like a very simple question. If I was aiming for an R/R of 1:3, I might risk 10 pips to make 30 pips. However, I am analysing historic signals for back-testing purposes and each signal resulted in trades that had differing S/L amounts (based on 1.5 x ATR(14)) and different pip gains depending on when trailing S/L or T/P was hit. Obviously, some trades hit the initial risk stop loss as well. So, when presented with a set of more variable data, I'm a bit confused as to the most appropriate formula to give me an indicator of the overall R/R on the historic trades.
Any ideas/thoughts on this would be greatly appreciated!