Risk Management Quagmire

Trading Discussion Risk Management Practices
1

Quiz

Topic: Risk Management

A trader is looking for a risk management strategy to use. He has backtested data for 38 trades and it has given him the following results.

Probability of hitting different TP Levels

TP1 has a strike rate of 32/38 at 1.22R
TP2 has a strike rate of 19/38 at 2.21R
TP3 has a strike rate of 8/38 at 4.94R.
He got stopped out without hitting any TP level 6/38 times at -1R

He is faced with a challenge of finding the right profit taking system.

Which of these scenarios is more profitable for the Trader?

Scenario 1

Close all trades at TP1

Scenario 2

Close all Trades at TP2

Scenario 3

Close all trades at TP3

Scenario 4

Close half at TP1, move his stop to Break even, and close the other half at TP2

Scenario 5

Close half at TP1, move his stop to break even and half at TP3

Scenario 6

Close half at TP2, move his stop to break even and half at TP3

Scenario 7

Close a third at TP1, move his stop to break even, close another third at TP2, move his stop to TP1 and close the last third at TP3

Please show your workings.

2

Oh, very cool question. I can’t really do math that complex, but guess who can. chatgot!

Looks like the last option is has the best “Expected Value” at 1.0184R. Next is option 2.

Is that what you got as the answer to?

3

Hi @nexus_traders, if you discover this strategy, I will go straight to Scenario 1

With winrate 32/38, you can play with bigger volume. Martingale can also be implemented when your consecutive loss is not long.

4

Pyramid at TP1. Use the same stop-loss distance for the new trade, move the first trade’s SL to the same level.

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