How important Risk Reward ratio is?

[Yashar Seyyedin]

Dear traders.

The common belief is reward risk ratio is not enough in evaluating profitability. You also need to know the win rate.

I have a theory for myself. I just want to know how you think of this.

"You cannot stay profitable in long run with reward risk ratio less than one. Regardless of win ratio!"

In other word: RR ratio is enough to evaluate performance in long term(and not short term).

This is coming from experience and studying real account analysis and others' traders performance.

What do you think?

[Keith Watford]

Yashar Seyyedin:

"You cannot stay profitable in long run with risk reward ratio less than one. Regardless of win ratio!"

I would say that it is most likely completely the opposite.

Many strategies, especially those with a SL much larger than the TP have a high win rate with many small wins, but eventually the SL is hit and the big loss wipes out all those small wins.

[Yashar Seyyedin]

Keith Watford #:

I would say that it is most likely completely the opposite.

Many strategies, especially those with a SL much larger than the TP have a high win rate with many small wins, but eventually the SL is hit and the big loss wipes out all those small wins.

Exactly. Traders with high win rate mindset have a tendency to keep their position for long time and wipe their small wins.

[Keith Watford]

Yashar Seyyedin #:
Exactly. Traders with high win rate mindset have a tendency to keep their position for long time and wipe their small wins.

Aren't you contradicting yourself?

Yashar Seyyedin:

"You cannot stay profitable in long run with risk reward ratio less than one. Regardless of win ratio!"

You are saying that you cannot stay profitable in long run with a smaller SL than TP. Regardless of win ratio!

[Yashar Seyyedin]

Keith Watford #:

Aren't you contradicting yourself?

You are saying that you cannot stay profitable in long run with a smaller SL than TP. Regardless of win ratio!

Oh. You are right. I meant reward/risk and not risk/reward. Thanks for correcting me.

[[Deleted]]

Yashar Seyyedin:

Dear traders.

The common belief is risk reward ratio is not enough in evaluating profitability. You also need to know the win rate.

I have a theory for myself. I just want to know how you think of this.

"You cannot stay profitable in long run with risk reward ratio less than one. Regardless of win ratio!"

In other word: RR ratio is enough to evaluate performance in long term(and not short term).

This is coming from experience and studying real account analysis and others' traders performance.

What do you think?

I started with leverage trading and blown up my account many times, The strategy was fine, the only problem was not managing risk or using SL. I believe every novice trader may have done this once.

I learnt that its impossible to survive without a SL or hedging system, RR 1:1 works fine if win rate is higher otherwise 1:3 risk:reward minimum is required to be followed up

Finding a SL is complicated way because few trader suggests SL based on price action such as if a hammer candlestick pattern is made, it is advised to put SL just near low of Hammer with few pts of spacing

and it is most often hunted then this is called SL hunting

so finding a real SL is very complicated for a trader because noise exists somtime wicks make a trade invalid, Many also believes in closing of a candle otherwise they dont consider wick for a trade failure

it does not matter if account size is $10 or $100k it will be hunted if a single trade is placed without SL or Hedge, because market makers have advanced tools to track market depth or book depth, they know who is placing what order with what SL

After learning from this, even if i trade when i am not focused, i do not make human errors as SL is always passed along with entry.

but its not a success solution, I also lost my capital even after risk management but it was done in 3 months slowly in 50 traders, while without risk management i lost in 3 minutes.

[Yashar Seyyedin]

Arpit T #:

I started with leverage trading and blown up my account many times, The strategy was fine, the only problem was not managing risk or using SL. I believe every novice trader may have done this once.

I learnt that its impossible to survive without a SL or hedging system, RR 1:1 works fine if win rate is higher otherwise 1:3 risk:reward minimum is required to be followed up

Finding a SL is complicated way because few trader suggests SL based on price action such as if a hammer candlestick pattern is made, it is advised to put SL just near low of Hammer with few pts of spacing

and it is most often hunted then this is called SL hunting

so finding a real SL is very complicated for a trader.

it does not matter if account size is $10 or $100k it will be hunted if a single trade is placed without SL or Hedge, because market makers have advanced tools to track market depth or book depth, they know who is placing what order with what SL

After learning from this, even if i trade when i am not focused, i do not make human errors as SL is always passed along with entry.

What I am trying to say is actually it is not important where you place stop. You get hunted every now and then anyway. The important thing is maintaining a good rr ratio.

[[Deleted]]

Yashar Seyyedin #:
What I am trying to say is actually it is not important where you place stop. You get hunted every now and then anyway. The important thing is maintaining a good rr ratio.

yes there needs to be a strategy which follows up with risk reward, You cant just follow risk reward if strategy is not supporting this ratio. Maintaining RR will not work if you have not tested your strategy to follow that RR you are following up. Some of my scalping strategy follow up 2 risk : 0.75 reward and its win rate is high so it works too, while some have lower win rate and it required 0.5:5 minimum. It fails 5 times but all loss recover and profit is also made when it gets a successful tp hit

[Yashar Seyyedin]

Arpit T #:

yes there needs to be a strategy which follows up with risk reward, You cant just follow risk reward if strategy is not supporting this ratio. Maintaining RR will not work if you have not tested your strategy to follow that RR you are following up. Some of my scalping strategy follow up 2 risk : 0.75 reward and its win rate is high so it works too, while some have lower win rate and it required 0.5:5 minimum. It fails 5 times but all loss recover and profit is also made when it gets a successful tp hit

Another thing i meant by the theory is: i wasted a long time identifying entry and exit while identifying direction is much more important. In fact momentum is the key to achieve high rr ratio.

[traderswithedge]

I agree wholeheartedly with your theory that the reward risk ratio is a critical factor in evaluating profitability, irrespective of the win ratio. Here are some compelling reasons supporting this perspective:

1. Risk Management: The reward risk ratio is a fundamental element of effective risk management. By maintaining a positive reward risk ratio, traders ensure that the potential reward outweighs the potential risk in each trade. This approach helps to limit losses and protect capital, leading to more consistent and sustainable profitability.

2. Consistency in Performance: A positive reward risk ratio enables traders to achieve consistent performance even with a win rate below 50%. The focus shifts from achieving a high win rate to ensuring that the average reward is greater than the average risk. This consistency can help traders weather the inevitable ups and downs of the market and maintain profitability over the long term.

3. Capital Preservation: A favorable reward risk ratio is instrumental in preserving capital. By only taking trades that offer a potential reward greater than the risk, traders reduce the likelihood of significant drawdowns and capital erosion. This prudent approach allows for better capital preservation and positions traders for long-term financial stability.

4. Emotional Discipline: Adopting a positive reward risk ratio promotes emotional discipline in trading. Knowing that each trade has a higher potential reward than risk helps traders stay focused and avoid impulsive decisions driven by fear or greed. This disciplined mindset fosters a more systematic and consistent trading approach, contributing to overall profitability.

5. Adaptability to Market Conditions: A positive reward risk ratio allows traders to adapt to different market conditions. Markets are dynamic and can experience periods of high volatility or low volatility. By maintaining a favorable reward risk ratio, traders can adjust their position sizes and strategies accordingly, ensuring they align with the prevailing market environment.

In conclusion, I firmly agree with your theory that the reward risk ratio is a crucial factor in evaluating profitability, regardless of the win ratio. It aids in effective risk management, fosters consistency in performance, preserves capital, promotes emotional discipline, and enhances adaptability to changing market conditions. By prioritizing a positive reward risk ratio, traders can improve their overall trading outcomes and increase their chances of long-term success.

[ZeroCafeine]

maybe this can help you @ Yashar Seyyedin, for me the RR before closing trade it's .......

you can have a RR of 0,30 You can make money if your trades win 85% of the time,for me the RR is bull shit, because all peopel thinking and starting to calculate this value before closing the trade, the market is the king, when he decide to close your trade, after this time you can check your hand and calculate the RR 🤣