The concept presented is intriguing. Nevertheless, it’s crucial to acknowledge the necessity of imposing a CAP on the risk-reward ratio at a certain point. Without such a cap, the likelihood of achieving higher risk-reward ratios becomes insane. My suggestion is to introduce a cap at a risk-reward ratio of 1:2.5.
Here’s a proposed sequential approach:
Level 1 - 1:1
Level 2 - 1:1.5
Level 3 - 1:2.5
Should you encounter persistent losses at Level 3 (1:2.5), it might be prudent to just bite the bullet and abstain from further escalating the risk.
Well, I had 13 consecutive losses on 13 different currency pairs one day. I would suggest that it would be highly unlikely that an increasing T/P would be hit.
However, if you aim to use price action to determine where a T/P is likely to be met, you could place a S/L accordingly. In other words the critical set up is where to place the T/P, not the S/L.
So, with regret, I cannot see your idea as being anywhere near plausible.
Increasing r:r is similar to a novice’s gambling tactic in betting.
So in a horse race you start by laying a bet on a horse to win at odds of 2-1. If he loses, you bet on the horse in the next race which is at 5-1. If he loses you bet on a horse in the next race who is at 10-1. Pretty soon you are betting on a horse at 100-1. But seriously, how often will a horse which is a 100-1 rank outsider win a race?
I think this is a tactic which makes for a really fun afternoon at the races and I have dabbled with it when betting on the gee-gees online. But it’s not a serious money-earning plan.
I think this is still the martingale strategy. And how I so dislike this strategy. It’s moreso trying to revenge the market.
Just as I’ve come to learn here in this forum and I’ve come to agree that it’s unrealistic to have your rrr fixated at 1:2 let alone 1:3.
If you lost your first set, there’s no need to increase your rrr, just stick to your strategy and if the losses continues, just bow out of the market and take a chill pill.
No, I haven’t tried such an interesting strategy but it seems to be valuable, at least, according to the way you have described it.
I don’t know, for risks mitigation I utilize standard hedging and I’m enough with it. I presume it’s not sophisticated to the extent like the one you have shared and at the same time does its job greatly.
It reminds me of Martingale method where you successively double bet sizes until you have a winning trade, while risk-reward ratio stays the same. Both approaches feature accumulation of losing trades, in case of classical Martingale losses could build up fast but you don’t “sacrifice” probability of winning the trade. In your approach, risk is fixed but due to stretching risk-reward ratio probability of winning the trade drops pretty fast.
In my view playing with risk management rules can yield better results when you know odds associated with the game, like coin toss game, cards, etc.
I guess you are right, it’s better to be fully convinced of the trend’s strength, otherwise no one exclude repulsive pullbacks from support/resistance levels or dramatic trend reversal because of some events in the world arena. But sometimes traders tend to wait, wait, wait until it gets too late to enter the deal and they miss the opportunity to earn on the price’s gradual raise/drop.
You don’t want to decrease your chance of winning every time. It’d be better to keep a 1:1 (or lower) and just double the trade size on every loss. What will happen eventually is that the market may not pay a 5R trade for days or weeks, while the 1:1 is hit 5x more often.
Risk management is very important in trading in order to reduce risk. I see the presentation by @despatrick22 as a combination of existing techniques. So it is hoped that it can minimize risks in dynamic trading. I add to remain optimal in trading analysis, with the aim of risk management running well.
So I started trading probabilities… but I’m too scared to use 1:1 or higher so I start with a 1:0.8, then a 1:0.25, and another 1:0.25: Trading probabilities
This particular type of trading is frowned upon for good reason. The probabilities of each R:R vary greatly. This is betting more than anything, I wouldn’t even call this trading. Especially if you are watching the same time frames throughout.
It’s redundant. If you can’t trade your first strategy profitably why attempt your second strategy to recoup your losses. When you could easily just avoid your first losing strategy.
Test your three strategies, provided you actually have three. And if they are profitable on paper. Then trade each of them in your market independently. But don’t use one good strategy to make up for a bad strategy and vise versa. It’s redundant and a fallacy.
Trading is about statistics, charting, psychology, and demand.
Your idea of increasing the risk-to-reward ratio after each loss is intriguing and could help recoup losses, but it’s important to be cautious of potential continuous losing streaks that may lead to significant risk exposure and added pressure on your trades.
UPDATE: there is a EA being advertised that uses martingale with impressive results, while I have no experience with it, if the results are true I can’t deny the strategies merit; search Valery Trading Waka-Waka (I may have to eat some of my own words).
I guess demo testing will quickly show you where you are wrong. Most probably the pitfall is in the probability of winning the trade, its decline “outweighs” increase in the risk-reward, so the expected value remains negative for you
What’s much more common (nearly universal), with this kind of misconceived risk management “technique”, is that demo trading will completely fail to demonstrate its fallacies, failings and inadequacies, because people very, very rarely do enough testing.
In that sense it’s just like the ultra-high-win-rate EA’s of which the vendors happily give a free trial, often by depositing a time-limited version of it in a forum, knowing that the inevitable, disastrous account-loss will only very rarely show up during the trial period, and many customers will wrongly assume that what they’ve seen in the short term will also be representative of the long term, so they’ll pay for the full version.
that it’s unrealistic to have your rrr fixated at 1:2 let alone 1:3.