Justification to use Risk Reward Ratio 2:1 over Risk Reward Ratio 1:1 - page 3
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I am a complete newbie as in never trade in real money since i know mt4 and mt5 from Playstore, and now on laptop. So i never experience slippage or requotes. lol
ok now, let's think about the probability that price move with the ratio exactly
1:1
or
hi/price=price/lo.
I am sure it really is small, close to zero. So, i think, that's the first reason not to make 1:1 risk reward ratio. So that left me with something like "is it going up more or down more?".
I think, that is a 50/50. In other words is like "am i right?" or "am i wrong".
That's all i can say for now. maybe i'll say something better when i am a better trader.
Neither. RRR ($W/$L) is only half the problem. Probability of winning (%w vs. %L = 100 — %W) is the other. Expectation is $EV = %W × $W — %L × $L.
If you can increase the RRR without lowering the probability, do it. A 100:1 trade has little chance of winning. On YouTube there is a 100% winning strategy. IIRC, it uses ~1:200 RRR and unfortunately it wins about 3 times per 30 years, so makes no real money.
You can decrease the RRR if the increasing winning percentage more compensates. On YouTube there is another poster that mentions a 0.6:1 RRR and wins 70% IIRC.
You don't control %W, and thus $EV. Only optimization can determine your optimum RRR for maximum $EV for your particular strategy.
I am a complete newbie as in never trade in real money since i know mt4 and mt5 from Playstore, and now on laptop. So i never experience slippage or requotes. lol
ok now, let's think about the probability that price move with the ratio exactly
1:1
or
hi/price=price/lo.
I am sure it really is small, close to zero. So, i think, that's the first reason not to make 1:1 risk reward ratio. So that left me with something like "is it going up more or down more?".
I think, that is a 50/50. In other words is like "am i right?" or "am i wrong".
That's all i can say for now. maybe i'll say something better when i am a better trader.
If you do several backtests of the same trading system with different Risk Reward Ratio values, you will notice that increase Risk Reward Ratio will decrease the effectiveness of the trading system, i.e. SL will be hit more often than TP.
Risk Reward Ratio is important element of money management. However, it is often used in wrong way becuase stop loss and take profit levels are determined by a fixed risk reward ratio (e.g. 1: 1 or 1: 2) but it should be it should be opposite.
In the first place you should determine the trade entry and trade exit based on the own chart analysis. Then you should calculate the risk reward ratio for this transaction and decide whether this transaction makes sense or whether the risk is too high for what you can earn.
Neither. RRR ($W/$L) is only half the problem. Probability of winning (%w vs. %L = 100 — %W) is the other. Expectation is $EV = %W × $W — %L × $L.
If you can increase the RRR without lowering the probability, do it. A 100:1 trade has little chance of winning. On YouTube there is a 100% winning strategy. IIRC, it uses ~1:200 RRR and unfortunately it wins about 3 times per 30 years, so makes no real money.
You can decrease the RRR if the increasing winning percentage more compensates. On YouTube there is another poster that mentions a 0.6:1 RRR and wins 70% IIRC.
You don't control %W, and thus $EV. Only optimization can determine your optimum RRR for maximum $EV for your particular strategy.
1:200, that's sick. how many pips? if you let10 pips for 3000pips. hm, hm, that's like trading(forex) in monthly chart or at least weekly. is that possible? yeah you are right. But, i don't always trade it, it's like i let it go if it's not like what i have been analysing. i do this by using pending order. i think if it's not moving like i predicted so that my order price triggered in certain period of time, that means i was wrong. for me it's like losing a trade without losing anything, just time. that leaves only those trade that, at least i can predict some of its movement, at least until my order gets triggered. i know from any point, the further the movement the less probable the price will reach that level.
If you do several backtests of the same trading system with different Risk Reward Ratio values, you will notice that increase Risk Reward Ratio will decrease the effectiveness of the trading system, i.e. SL will be hit more often than TP.
Risk Reward Ratio is important element of money management. However, it is often used in wrong way becuase stop loss and take profit levels are determined by a fixed risk reward ratio (e.g. 1: 1 or 1: 2) but it should be it should be opposite.
In the first place you should determine the trade entry and trade exit based on the own chart analysis. Then you should calculate the risk reward ratio for this transaction and decide whether this transaction makes sense or whether the risk is too high for what you can earn.
so my method is like as if i trade 1:1 and i assume that the price will at least go wrong for about 2/3 of my theoretical stop loss, that's where my real entry is. that means i lose this if actually the price is going further than i predicted before move away to other direction. i win that trade if it doesn't. so yes logically higher RRR less probable, but if you have some analysis, considering forex not fully random as not fully deterministic, there is no way to calculate the probability of which direction price and by how much.
but by noticing some pattern which happens so many times, so many that it's significantly hints of some continuation pattern, i don't think that's 50/50. to be modest, the probability is as much as you observe.
i believe in a complex and semideterministic condition, saying that right or wrong can be taken as 50/50, it's better than no expectation at all.
i am neither a half-full-nor-empty-glass person, i'll just say a glass of water, assuming i don't know if there is any water left or more water to refill the glass.
i meant my post as a bait to share of knowledge. i'd love to know how i wrong so that i know how to fix it. if you don't mind, why don't you share your method. i'd love it if you comment it with your method, and your reasoning, cos actually i want to learn from you guys actually do in real trade, since i am so green. ^_^
btw, i believe i am not the only one who can benefit from that, brokers too, lol, since so many people will learn and start trading. lol
nice reply btw ^_^