Is Risk / Reward & Money Management The Holy Grail

Traders - hello!

I’ve been trading a live account for the past 5 months now and whilst the first three months were fairly steady, month four went wildly well and I was sat at +105%.

Today is almost the 5 month mark and I’m down to -50%.

I’m not saying RR/MM is the be all and end all but looking back over my results it is a major factor in my demise.

One of the other big mistakes I make is having too tight a stop which leads to losses and then RR/MM goes to pot.

Therefore as I am now -50% I will be trading the same size on every position with the same risk and I am going to look at how I do over the next four weeks.

From my analysis I also let a lot of profit go by either taking profit too early or holding for longer to try and get a larger gain so I will also be looking to have a fixed TP level. My SL is always hit for the full amount so another area to resolve issues.

Average win vs. average loss is skewed to the losses being bigger - an absolute issue that needs resolving too.

So I suppose I am here to hopefully detail my journey and journal and also potentially pick up some advice from the good folk here on Babypips and also find a nice price action type thread.

I’m going to try and limit my trading while in between work activity and try and just pick a limit order for the day and trade that and use RR/MM so I can see how the results work out as the current method simply isn’t working.

Before I go I suppose I should say a little about how I trade - or try to anyway :slight_smile:

I look at price action and TL analysis. I do try and also incorporate a 10 day SMA too. When price breaks a TL and then retraces, I look for the recent high to be broken and then trade in this direction by watching S&R levels and how price reacts around them looking for a buy signal or sell signal if the reverse is showing.

In reality I trade very willy nilly and I do not follow my trade plan especially after a loss. Writing it here is already helping as I can see how erratic I have become.

So - I hope that helps in telling a little about me. Chirp in where you can and hopefully we will see my development evolve from within.

Good post! Valuable lesson you learned!

You feel on top of the world during a winning streak, but you have to saty down to earth. It sucks, in know

Anyway, looking forward to your journal. Be honest to yourself as that makes it eassier to being open to learn new things.

Cheers Toekan,

Agree no point in lying to myself as I want to improve so I’ll be as honest as possible.

Yeah that winning streak had me nearly buying the holiday home :smile:

Seriously though, it is tough but definitely possible.

Good that you are improving pn your self understanding!

Try to use a pencil to write down your trading plan (setup, emergency rules, money management etc etc.).
Trust me, it works even better on your self evaluation and development than typing.

Good luck! :23:

Thanks Dutch.

Today’s trading was Ok in the end result. I took two short entries as this was in line with the 4HR trend in general.

I missed the initial move down during early session and as news was out at 09:30 I resisted the urge to trade and thought I would see how price reacted thereafter. I saw the news spike and decided to wait for a sell signal after I decided the news had provided a fake rally given my trend analysis.

I decided after price broke back below 1.4320 I would wait for a return and trade this area.

I ended up getting in too early as I saw price make a low and then rally again and when it tailed off around 1.4315 I sold it at 1.4308 with a 10pip stop and was stopped out.

This was a mistake in that I had noted 1.4320 as where I wanted to sell and wasn’t patient enough to wait for it. I then hesitated to open the next trade there and waited to see if it reacted.

It did and so I then again went short this time at 1.4309.

The next time I saw the trade it was bouncing off the 1.4235 area and I thought I would wait and see if it continued down but didn’t want to give all profits back so moved the SL to +40.

This was also a mistake as I said yesterday I would enter the TP at market. I wanted 40 from this so I locked in the 40 but when I opened the platform and saw it 55pips in profit I should have covered there but I didn’t and it did retrace to the 40pip SL level. Had I closed earlier I would have exceeded my target so I shouldn’t have hesitated and given back the profits. A tricky one this though as normally I don’t let the profits run and always let the stop get hit but then again 1:4 should have made my mind up.

Lesson to learn here is that I should enter the TP and be more patient.

Looking at the positive I traded my direction, resisted the news urge and still ended up with one win @ 40pips and one loss at 10pips so a good result overall. Both positions were the same position size and risk % too.

Here are today’s entries and exits to go with the above notes.

Don’t you just hate that when it finds a new low when you just entered… :smiley:

How did you determine your SL? Is that based on a objective consideration, or did you just allow yourself an SL of 10 pips (later adjusted). A consideration that I would have is that it was already ranged. Ranged areas often come with retesting the lows. Also it is a ranged area in a downwards trend that went on for a couple of days now and was nearing an older S&R area that was formed between 3 and 8 february. I wouldn’t have entered with a buy. I would have either hold my sell or not enter at all. Just my consideration and easy to say after the fact.

Good that you hold steady during the news… :smiley:

Hey Toekan - I didn’t enter a buy as I usually don’t counter-trend trade so I will take an opinion (bullish or bearish) and trade that direction only when price seems to be running out of steam on the short-term trend.

I usually place a stop above the recent high or between 10-15 pips, sometimes higher if it’s a longer-term time-frame as long as within the risk % tolerance. I try and keep stops tight as this allows re-entry if the initial position doesn’t work out and then if I have two losers in a row I plan to stop trading that day as this should benefit me in the long run as my gains seems to be quite consistent over a period of time then I have “meltdown” days where had I shut the computer off I would have been in a far tidier position in terms of account increase.

Three more trades this week which I’ll post up over the weekend.

2 winners and a loser with some lack of discpline involved.

Posution sizes and risk were consistent so not alll bad.

So here are the positions I mentioned.

All three trades were on the German 30 Index.

First trade saw me open a sell order in my short bias direction as price became unwilling to move higher. I opened at 9517 and could have closed for 75 pips as this is where price was when I was next able to check. I decided I would hold for a longer move and ended up closing at 49pips. Originally I wanted 60pips from this move to the old support area and so when I was offered 75 I should have closed instantly. Also had my TP been entered before the move again I would have fared better.

Second trade was counter trend to my bias and so a small mistake here also. Also price hadn’t really shown any indication of going higher so it was a poor trade that was not within my usual rules. I lost 15pips on this trade but the position size was the same as the earlier move and so it didn’t take too much of the profit away.

The last trade on this day was another short, same position size as earlier and a fixed SL and TP of 20pips was entered pre entry and the TP was hit for 20pips at 9338 after entry at 9358. The entry for this should have been at 9378 but I missed the entry at the support area.

So although some mistakes, the tight SL and position size ensured a profitable day when the trading wasn’t quite perfect. I’ll work on this next week.

Here’s a trade I opened last night before bed. The price was bearish on 4hr and 1hr charts and so when the price had gapped down during the open I decided there was good resistence at 1.5580 area and entered at the market at 1.5573 and put the TP in at 1.5273 which was a little above the old lows of 1.5253 area.

My SL was 20 pips. I took a 1/3 of the position off at 60pips during the night and then when I reassessed this morning I took another 1/3 off at 146pips and wanted to see if the remaining position would reached the TP.

However not long after taking the second 1/3 off I decided to move the SL to +120pips as I didn’t want to give too much profit back.

This was a mistake as I knew it was wrong to move the SL so close but at the same time I have banked some good pips on this move and average 100 pips in total across the three portions.

My SL should have trailed above the recent swing highs so I could have continued with the move to see if the position would have fulfilled it’s potential as I saw it.

I suppose here I am trying to learn if I can trade the longer term or if I set my TP lower so I take the money whilst it’s there…

Letting your winners run is a good saying but so is “you don’t go broke taking profits” so I need to figure this part out and see how my style develops over the course of 6 months and make a decision based on the results.

How did it go? Were you able let profits run? got back from drawdown?

In my opinion risk reward ratio is the holy grail to any strategy

I agree with you 100%, but not every trader knows about it.