Hey everyone, complete noob here - just started learning forex properly for myself around 2 weeks ago. I’ve been following a signals service (which I’ll be leaving now) for about a month and found that nearly all of the setups sent out have a lower than 1:1 RRR. When I asked the guy who runs the service why this is the case, he simply responded by saying ‘support/resistance areas.’ Now obviously I’m not clued up on anything at the moment and was wondering if anyone could offer an explanation as to if they’re ever justified and if this could be due to trading strategy, etc. or if it’s just plain stupid.
For most people, they’d have to say (or should admit) that’s just a poor trade set-up, you should wait or move on to a better chart.
However, if your stop is 100 pips away and your target is 100 pips away, it could be argued that it takes the same amount of market “energy” - momentum, volume, buyers/sellers, what have you - to move price to one or other. So only half as much of one of these is only 50 pips away. From that point of view a 50 pip win is twice as probable as a 100 pip loss, so after a large sample of identical such trades, you’d still be at break-even.
I don’t think this is an automatically crazy idea, its perhaps just one of those things that educators put out to avoid being responsible for some new trader’s immediate wipe-out.
I’d love to hear from traders who have reversed the r:r ratio please.
Thanks for the response. Could you elaborate on what you meant by ‘it could be argued that it takes the same amount of market “energy” - momentum, volume, buyers/sellers, what have you - to move price to one or other. So only half as much of one of these is only 50 pips away. From that point of view a 50 pip win is twice as probable as a 100 pip loss?’
Cheers. I have no evidence, either statistical or market practitioner behavioural.
But take to to extremes - if 10 pips is more likely to be hit than 1000 pips, then 50 pips is more likely to be hit than 500 pips, then… you can see where this leads. But this is just theory. I’d want to hear from someone doing this in practice.
The clever trick is balancing the SL/TP distances involved. Obviously a 10 pip target is more likely to be hit than a 1000 pip stop-loss. But how many trades will just go to -100 or -200 or -300 pips, never hit the stop, never hit the target. Even with a positive high win rate and zero stops hit, you’d eventually run out of available capital for trading.