Thread: Risk/reward
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Old 07-03-2008, 01:03 PM
mtandk0614 mtandk0614 is offline
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Join Date: Mar 2008
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Yeah...your going the wrong way here.

Your logic behind the negative risk/reward is understandable. As you stated "if you are making good trades". But allow me to reverse the table on you...if you are making good trades, then your risk should not be lower than your target profit. Maybe easier to break it down like this:
If you have SL 25 and TP 10...........Balance of 100 just to make life easy:
If you really are "making good trades" a 70% win rate would be acceptable.
so you start with 100, with 70% wins.....you have profit of 70, loss 75....not good.

NOW...lets change the point of view and pretend the term "Making good trades" equals a 40% win rate.....should be easier to do...we hope.
I perfer a 3:1 or 4:1 ratio...but we will go with the min. 2:1.............
I have 100, SL 20 and TP 40. In the last 10 trades I win 40%.
Profit = 160, Loss = 120 ....YEAH !!! I am rich...ok not really, but hey I made some money.

If your system does not work with a 2:1 ratio....I would suggest you change your system. And if you find you are not hitting the target profit enough...try applying your system to a longer time frame.......Quality over Quantity my friend

Best of luck to you.
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