How to Profit even after losing 7 out of 10 trades?

Beginner Questions
1

Hello Fellow Babypippers,

Am writing this article especially for newbies.

The game is all about Loss : Profit, I always look for 1:3 setups.

That is, If my stop is 10 pips, then my target is 30 pips.
If my target is 100 pips, then my stop loss will be 33 pips or i can just keep it at 10 pips depending on my entry.

And if you actually see, with any strategy of yours, you can have 1:3 ( loss : profit ) ratio and it works.

How it works?

For the math sake,

let’s say the strategy success rate is 50%. That is out of 10 trades, you win 5.

Calculating at $1 for 1 pip, and having 10 pips stop and 30 pips target, 1:3 ratio trade setups for 10 trades.

You end up making,

5 winning trades * 30 pips * $1 = $150 (150 pips)

5 Losing trades * 10 pips * $1 = -$50 (50pips)

Profit : $100 dollars, with 100 pips.
(Taking 10 to 15 pips as spread, even then you will make 90 to 85 pips)

Now how this strategy works, even after losing 7 trades out of 10?

Let’s do the math again,

7 losing trades * 10 pips * $1 = -$70 (70 pips)
3 winning trades * 30 pips *$1 = $90 (90 pips)

Profit : 20 pips

Even your worst trading strategy having 70% failure rate can make you be at break even or some profit for the day.

Just choose one strategy, you can definitely find good setups and with good risk reward ratio.

Please don’t say that you don’t have a good strategy to trade. Like i explained above, even your worst trading strategy can make you money, if you follow 1:3 risk-reward ratio.

Hope the above explanation helps you all newbies to understand that it is just not about good trading strategy. It’s all about your entries and exits.

I will try to do a video tomorrow, and post here.
I will take moving averages as example and show you how to enter and exit using 1:3 risk-reward ratio.
The video should definitely helps you how to find good entries and exits using your own trading strategy.

Cheers,
Tarun

2

First thank you for sharing this with everyone in this forum. I would like to clarify a few points on the risk reward ratio because I am a fan of it as well. First, if you use technical analysis the stop and take profit are taken from the chart, you cant just wake up on morning and say I fancy a 20 pips stop and a 60 pips take profit. If you are uncertain how to get the stop and take profit from the chart start learning now. The second part and this is the toughest part is to stay in the trade after being in a profit and then in a loss multiple times. Imagine you have a 60 pips profit, you are in 25 pips profit and the market drops and hits your stop. Now imagine this happens a few times in a row, what would you do? Close with a small profit and the risk reward wont matter or will you continue to stay in the trade, possibly losing more? It requires a lot of skill to be done correctly. If you are new to trading and I am speaking to everyone who is reading this start learning a several technical strategies and then explore how you can apply the risk reward ratio. Dont rush.

3

The other problem with this approach is the huge drawdown that can occur particularly if you trade multiple currencies. You have 7 lossing trades in a row across 5 pairs at 1% risk per trade and theres 35% of your account gone. And that can and does happen in a matter of days. Chasing higher RR ratio means having to reduce your initial risk %. So where a trader chasing a 1:1 RR is happy to risk 1% each trade chasing 1:3 RR you should reduce you %risk to just 0.33. Thats money management.

With that said chasing 1:3 RR has a naturally probable win rate of 33%. If your system can improve that to say 50% then increasing %risk per trade is just a natural progression.

Its about understanding every aspect of trading. The markets you trade in. Entry exit rules. Money management. Stops. And so on. It all relates to a profitable system and you have to own it, love it, live it.

4

At least traders who read this will definitely understand that 1:1 is the safest & profitable, while 1:3 is risky.
Two important things regarding stop loss:

  1. Your stop depends on the volatility of the currency which is independent to time frame.
  2. Higher the time frame, larger is your stop.

You can’t expect a smaller stop loss trade, entering a trade on 1 or 4 hour chart.

Coming to risk-reward, 100% it depends on your entry. You can’t expect even 1:1 reward entering long at high of the day.
Next, talking about probabilities, what’s the probability of losing 7 trades in a row? Let’s say chasing for 1:3, say you will lose every time.

Here, if you are entering trade blindly, you are not chasing 1:3, you are gambling yourself to make profit.

Like @bobbillbrowne said, it is all about Entry/Exit, Money Management and also how you going to manage your trade.

@Pollar, that’s a good point you made regarding the trade which you see in profit and later it turns around and hit your stop or where you can’t look for 1:3 trades.

Talking about Intraday Trading,

Every newbie is taught by so called gurus that you should have 30 pips stop minimum, even if you are looking for 1:1 risk reward, your target for the day is 60 pips.

98% of the traders can’t book 60 pips, why? They don’t understand the concept that today’s daily average range of currency pair depends on yesterday’s rise/drop.

For example, Eur/Usd has average daily range of about 60 to 90 pips. Now having 30 pips stop loss, then targeting 60 to 90 pips is unreal. (For this you have to enter exactly high/low of the day)

What you have to do? 30 or 40 pips will be your target, understanding that the currency is done for the day or using indicators you will know if the currency is at probable peak of the day or low of the day.

Conclusion:
Your risk-reward completely depends on your entry and exit rules.

You are not challenging the trade for 1:3 ratio every time you enter. You will have to manage your trades accordingly.

Use price action, indicators like stochastic, rsi to identify highs/lows of the day.

Challenging will lead you to gamble with your trade.

*** Risk-Reward trade plan will make you a better trader, as it will help you to manage your trades and money at the same time. Also will teach you to be patient to enter a trade and wise when you have to exit. And is not about making two or three times profit.

5

this is very ideal, only once in a while, speak thru experience.

6

So you basically say that 1:1 is a better choice than 1:3 because the trade will have a higher chance to succeed?

7

Short Stop Loss, Long Take Profit, is this strategy?

8

It sounds good, on paper.

I wouldn’t be able to make a living, that way.

If you have only a 30% strike-rate, then not only do you have to allow for very long losing runs (like 35+ consecutive losers), but you’ll also [U]much[/U] more commonly have “bad patches” of 100 trades with only very few winners separating 90+ losses. [B]In practice[/B], almost regardless of the R:R ratio, this makes risk very high and position-sizing [I]terribly[/I] difficult, and in short it typifies exactly the sort of problem and trap for the unwary that aspiring forex traders should be trying to avoid.

It’s [I]terribly[/I] easy to underestimate how common and how dangerous “bad patches of results” can be, and is generally a [I][U]hugely[/U][/I] misunderstood subject.

Recommended reading: “[I]Profitability and Systematic Trading[/I]” by Michael Harris (Wiley, 2008)

9

It is not the trading strategy. All i did is to explain how you can improve your existing strategy.

Well, I wasn’t asking to lose 7 trades to make profit.

My only intention was to let traders know how good their entries should be if they have to lose less and make more when they nail a trade.

And losing 35 trades consecutively? Like i said in my previous post, You aren’t following a strategy, you are gambling yourself.

10

Nobody suggested you were.

If you trade with a method that wins 30% of the time and loses 70% of the time ([B][U]your[/U][/B] chosen example, which [B][U]you[/U][/B] are saying can be viable), you [U]will[/U] at some point have at least 35 consecutive losers, if you trade for long enough. It’s a mathematical certainty, and if you read a book on the subject, like the one I recommended above, you’ll see it explained in detail. I’m [U]not[/U] for a moment suggesting that such a system couldn’t be viable, in spite of that reality. I know it can. I’m simply pointing out the inescapable reality that such systems are [I]very[/I] difficult for beginners to trade, because of the inevitability of long losing runs and [I]even more[/I] long “losing patches”. Such methods require statistical understanding and position-sizing skills which, in reality, very few inexperienced traders have.

Meanwhile, you’re trying to have it both ways, here, by explaining (correctly) that a system with a 30% strike-rate can be profitable, but also then telling people (mistakenly) that they’d be “gambling” if they used a system that could have 35 consecutive losers. If only you knew it, the two are actually the same thing, because a system with that strike-rate [I]will[/I] eventually have that size of losing run.

11

  1. I shall not lead this thread to some debate.

  2. What ever i said isn’t just about 30% strike rate.

  3. Only if am a believer of Mr. Michael and his 35 consecutive losers, then am definitely mistaken. But am not.

12

Debate can be healthy and beneficial. Especially if it dispels popular misconceptions, corrects misinformation, or provides potentially helpful, referenced information to others.

Nobody suggested it was.

On that point, we agree. :wink:

There are objective, mathematical formulae from which such [I]facts[/I] can be derived. They’re explained and exemplified in many books, including the one I referenced above. (It’s available to inspect/read freely on “Google Books”: you don’t have to buy it, to check it out for yourself, if you’re really willing to be mistaken about this. Look at around pages 65-66.)

13

Glad to see level-headed debate is still alive and well on Newbie Island.

Tarun, regarding your post on my ‘Why we need more (good) female traders’, I should say that it is not

about male-bashing, as that would be a failure on my part to address what is essentially an institutional

problem: it is not individuals who have a ***ist attitude per se, it is a collection of individuals who seek

to protect their group, and their privileges. Because financial sectors are more predominantly male, they

seek to protect a certain set of behaviours, and, you could say, a certain kind of male-ness, which is

often negatively biased against those who differ from its identity: it is not just women who are not

welcome in certain sectors, but also men and women from ethnic minorities, and/or gay/lesbian, and/or

religious or differently-religious. Basically, the financial sector is ruled by the WMCM (White Middle-Class

Men)… While you can understand someone not fitting in and the need for recruiters to choose someone

who can ‘fit in’, when this discretionary filtering-out is based solely on gender then companies are losing

a lot of human potential, because women make up a huge proportion of the world population… That is

why gender discrimination is big news… If you are, say, a black, lesbian, Muslim female trader applying

for a job in a white, middle-class, hetero***ual, 'wasp’ish trading firm, you may think that the interview

panel would assess you on your merits, but you and I know that it is not the case: a negative bias will

be applied to you, layer after layer, before you can even write that e.mail back, headed 'Requesting

feedback’.

But that is just me, cynical old me.

I am sure that things are getting better, but the road ahead toward fewer discrimination toward people

who deserve equal judgment (e.g. female applicants to a male financial firm) is still lined with pitfalls…

For many aspects, this still is, very much, a ‘man’s world’… and that is basically like saying to every

new generation of girls that they may as well give up on education and a career, because, well, it just

isn’t worth their time…

As a teacher, and a liberal, I find that intolerable… don’t you? I hope so, and I hope so does everyone.

Yes, base selection on merit: but be aware, be very aware of truly judging on merit, and that alone,

because negative discrimination is always within us, even in this allegedly liberated new millennium.

I am done.

Time to be quiet.

:slight_smile:

14

If you loose in 7 trades had a rest see what is the main reason of your loss. You can win any time after consistent loss a traders should need a good plan , analysis before open any position .DO not open trade one after one if you are loosing. In this situation you will be tense. Do trading another day with fresh mind and new passion.

15

Correct use of stop loss is what will make it possible, I have seen plenty of experts losing huge amount of trades daily, but just one good trade is enough to recover the loss part of 15-20 trades.

16

My experiences are completely different from that.

I was brought up by and around professional traders, and have never heard of such methods being viable at all.

I don’t believe it would be possible for anyone to trade successfully, over the long term, with a win-rate as low as 5%, and I don’t believe that any trader (whether institutional or retail) with an understanding of the “losing run/losing patch” statistics inherent to trading profitably would be willing to try it. I certainly wouldn’t.

17

Have you basically just watched this video online and taken the idea as your own? (20 minutes in he starts saying eaxactly what you have)

Or are you the guy in the video? lol

If I were you I’d listen to the guys on here and respect their opinions, I know I do.
They are seasoned pippers that just want to see us newbies succeed with PROPER risk management…

18

Hi Tarun and thanks for the OP.
As I (would like to) understand it, you are not [I]recommending [/I]any strategy that produces a 70% loss, rather you are emphasising that good risk/reward management can [I]still [/I]keep one profitable even if one’s strategy happens (exceptionally) to hit a bad patch of even up to 70% losses.

I think this is sound sense in principle but I would not recommend making this into a too rigid mathematical formula that blinds one to the actual trading entry/exit set-ups themselves. If the typical max profit from a single move on one’s trading timeframe is, say. 20-30 pips then it makes sense to keep one’s stop in general to a max of, say, 10-15 pips (although this should [I][I]also [/I][/I]be related to the typical pullback that one’s system tolerates).

Keeping this kind of commonsense approach to risk/reward can help very much in deciding whether to take a trade of not. We all know that in a fast-move the actual price level following a system trigger can sometimes be miles away from the nearest logical stop-loss point. In such cases, it is prudent to evaluate the RR involved and consider whether it is better to stand aside and wait for the next train to arrive before getting on board - there always is a next opportunity.

The logic of a 3:1 is fine as it stands, but it doesn’t beat evaluating the quality of the trade set-up first and only then checking the logic of the potential gain against the distance of the realistic stopout before entering.

I think it is very important to keep flexibility and commonsense in mind and only use these kinds of “formulas” as guidelines in all aspects of trading.