R:R vs probability

Beginner Questions Trading Psychology
1

Hi guys,

I believe R:R is not important in comparison with probability. Reason being is that no matter what risk reward ratio you choose you will always end up burning your account if majority of your trades end up going against you. You need to stack up probability in your favour ie pick winners more than losers. Now some say trading is a zero sum game and that no matter how hard you try it like flipping a coin. When you choose a trade you end up with two scenarios. Either correct my way or oops against me. So it’s 100% or Zero. one thing I learned is that any indicator or tool or even price action used will not always perform as per technical analysis book. What I hate most is when book writers compare trading to academic professions and that’s wrong because any profession you choose to study will perform 100% in your direction if you actually understand and follow the instructions and lessons. 1+1 for example will always end up equaling 2 not any other number as to whenever mathematics desire ! If text books on tech and funda analysis work we would not see big hedge fund managers scam and engage in inside trading. My mind clearly set on this but my heart says no there must be a away for average retail trader to make a living out if it but sad reality is, I’m probably addicted to gambling so as many of you in this forum who are constantly trying to figure out a way to make it but end up burning their money and not admitting it. Appreciate your thoughts guys. Thanks.

2

Hi Keel,

There was a thread that I read online somewhere, he had the same problem as you. Took wild shots that he could not help. So he decided to have two accounts, one for his gambling which was a micro account the other was for his strategy. Always worth thinking about . I do not see gamblers lasting a long time in this game to be honest, a strategy is a must, even is the strategy is basic .

3

Great thoughts here. I’d like to add one more thought that many new traders don’t consider. Having a strategy is a must as u27ma2 says, but what’s more important is risk management. Great risk management is what gives a large sample of trades the overall probability of success, because you can control your max loss and maximize your profit when a trade goes your way. For example, let’s say that out of 100 trades you lose 90 of them at an average loss of 1 unit of risk, and with the 10 you win, you earn 10x 1 unit of risk. That puts you up 10 units of risk. In other words, losses are limited while gains can theoretically unlimited. This is easier said than done, but that’s the possibility that the market offers when great risk and trade management skills are paired with a good strategy.