Risk, Reward, Ratio

Beginner Questions
1

Hi guys,

I’ve been trying to put the the 1:2 Risk,Reward,Ratio in to place, but find that it takes so long just to try to get 200pips and most of the time it hits my stop loss…
If i put my stop loss more back that means that my profit limit has to be further away and it would probably hit my stop anyway…
i’m using the daily,4hour and the 1hour charts.

Thanks raf

2

There was a similar post on forex factory (Under trading discussion) recently about RR’s so I’ll just quote what I said

I’ve always considered the RR thing to be more use in statistics, rather than planning a system/strategy around it.
The lower the Risk:Reward (1:0.5) then the better the chance, theoretically, of hitting your take profit level but then it only takes 1 loss to wipe out 2 winners. Vice versa, if your system had a RR of 1:3, then there is more chance of your trade hitting your SL but it only takes 1 winner to get you back to break even after 3 losses.

So like I said, I personally think it should just be used as a statistical type thing

3

Don’t look at your R/R in isolation. Figure out other things such as your win/loss ratio, etc. If your R/R is 1 but your win ratio is 70% you’ll be making money. There’s a host of other statistics you can figure out once you record all your trades properly.

But yes, if you’re looking for 200 pip moves you need to be prepared to dig in and wait a while

4

I agree with the above. I will take trades that fit my strategy as long as they give 1:1, but obviously it is nicer to go for more. I will happily risk 20-30 pips to make 20-30 pips if it fits my strategy, as I know from experience that the chance of each trade being a winner works out at much better than 50-50, and I can put 1% on my account in under an hour. So for the smaller pip trades under that strategy, 1:1 works well. However, I also place end of day trades, and bigger intra day trades, that start out 1:3 or more, and can run well past that. So I don’t think that a rigid R:R target would work for me. But if you have a strategy that gives you better than 50% winners then anything from 1:1 up will work.

5

RR is one aspect… my AVERAGE RR is about 1: 1.5

my AVERAGE win ratio is about 57%

There is a great book that explains all of this much better, it’s called “Trade your way to financial freedom” by Dr. Van Tharp… the method he teaches to “optimize” is called “expectancy”…

It takes into account win rate and RR and most importantly position size.

6

I see a problem from your initial post:

…but find that it takes so long just to try to get 200pips and most of the time it hits my stop loss…

If your stop loss gets hit most of the time (ie win/loss @ <50%) then a R:R ratio over 1 still won’t increase your probability of success. I’d go over my losing trades and figure out how to get that 50%+ win/loss first. Might be having a smaller initial pip target or a need to find more strict trade entries. Hope that helps mold ur trading a little better. :slight_smile:

Apprientence, nice ratio. I’ve been seeing many 1.5’s in my trades.