So just say I came across a strategy that wins roughly 2 out of every 3 trades when you use a 1:1 Risk/reward using very simple Price Action. It works on most Currency pairs…Actually I haven’t found one it doesn’t work on yet. I know most recommend using a 1:2 to a 1:5 + Risk/Reward ratio. I know that I can make greater gains on some trades by increasing my R:R but Ill lost probably 1/2 of my profitable trades so my win ratio comes to roughly 1/3 or less if I increase my R:R. This is not trading the Daily Charts but rather the 8 Hour. I would prefer the daily but my work schedule doesn’t allow me to be around 5:00 EST to trade.
I’ve never taken any notice of them at all, myself.
There’s absolutely nothing wrong with a profitable system of the kind you describe, with 1:1 R:R and a win-rate around two-thirds. It has a Profit Factor of 2.0, after all.
One of my own regular trade entry types has a R:R ratio of (just) [U]below[/U] 1.
I know at least one successful, independent (ex-institutional) trader whose primary trading is exactly as you describe, with equal-size targets and stop-losses, and up to about a 70% win-rate.
Trading like this, with a lower R:R ratio than most people recommend has a couple of specific advantages, too: it makes for a much smoother equity-curve than all those other traders with the higher R:R ratios can ever dream of, and it makes your position-sizing particularly easy to work out, too.
You can adjust the settings of “when the day starts”, if you want to use 24-hour timed charts. (I have no idea whether your method will work the same way, if you try it, of course … so I’m “just saying”.)
Nothing wrong with that either, in itself, but be aware that some of your trades, if you’re looking at 8-hour bars/candles, may represent as much as 20 times the volume of others. (For example, the 8-hour bar that includes the 4-hour time-slot during the RTH of both Europe and the US will represent huge volume compared with the “dead of night” one representing a couple of dead hours and a bit of the Asian session.) You presumably need to take care over whether/how that’s relevant to you, and if so, with which pairs? Again, I’m just mentioning it in case you weren’t aware of how significant it can be, with some methods.
Of course you can! Winning 2 out of 3 trades is no guarantee that this will happen in a nice neat order, win 2/ lose 1, win 2/lose 1. He could lose 10 consecutively, blowing his account following your advice- I sincerely hope this was just a joke
2:3 means he wins 66.7% of the trades. Obviously those trades aren’t distributed like: 2 wins followed by 1 lose always. At some moment he will have a big series of losing trades and if he would have kept doubling the lot size after each lose he will lose all his money, at that moment.
With a strike-rate of 66.7%, I would want to allow for a losing patch equivalent to 12 consecutive losers, myself. Actually, I’d probably want to allow for more, because I’m conservative and risk-averse and can’t and won’t tolerate substantial drawdowns.
(Note that I’m not suggesting you’ll ever actually have 12 [I]consecutive[/I] losers, and you probably won’t, but over the course of a few thousand trades you might well have a “bad patch” which will have the same effect on your bankroll as 12 consecutive losers. And it really is right to think of a few thousand trades: in this business, the long-term view is the one that matters).
It’s [I][U]essential[/U][/I] to avoid the situation in which you hit a bad run and [I]can’t decide[/I] whether or not it’s just a foreseeable bad run, within the realms of perhaps “a slight statistical outlier”, or the whole system has stopped working.
I never understand the logic of allowing position-sizing to be determined by the outcome of the previous trade.
Either your system has a genuine edge at level stakes (or “level percentage of funds” stakes, anyway) or it doesn’t: if it [B]doesn’t[/B], you shouldn’t be trading it at all and certainly can’t safely improve it by increasing the stakes after a loser; if it [B]does[/B], then that’s not something you need to do anyway. to build the account and/or make a living from it. So either way, increasing the stake after a loser isn’t for me. And I notoriously have no sense of humour at all and am therefore clearly not joking. Just my perspective on this ever-thorny subject! :8:
Ive thought about double down and all jokes aside it probably will work but like mentioned earlier. There is always that chance that you can you lose 10+ trades in a row and if I started out risking $100.00 per trade then you would be risking $51,200.00 just to break even… Thats a lot of risk to make $100.00
Agreed Lexys. The only time I increase my position size is if I have grew my account by a set amount. Then “play” with the markets and increase the position size once its increased to the next set amount.
Being this works 2/3 of the time I’m looking to improve the odds.
I presume you dont play holdem
Sometimes you need to go all in with good odds
To maximise the expectation.
I am not saying that money management is not important
To double up or not is just a matter of individual risk appetite. Whether my advice is good or bad depends on the receiver ability to comprehend & execution. Individual LUCK as well ( i define good luck as external variable that is favorable to our endeavours )
My ideal R:R is to take 1/2 of my position off once Im up 200% of my risk and move my stop to break even. So I risk $100 and when I’m up $200 profit I take 1/2 off and after I move my stop to break even. This way I can catch some nice moves
I do something similar, but my numbers are different: I typically take off one third, sometimes even two thirds, once I’m up 100% of my risk. So I’m being less ambitious, I suppose (but I trade more frequently than many intraday traders, probably, as well as being more risk-averse).
I [I][U]did[/U][/I], for years, but actually I switched to futures a year ago, so technically I don’t any more, though I’m doing exactly the same things and trading the same ways now as I always used to - but just using volume bars instead of timed bars, the availability of which was the main reason for my switching over.
You are not alone. I’ve always found textbooks far more reliable than internet “information”.
I usually advise people to stick mostly to mainstream, orthodox, well-established books from mainstream, orthodox publishers. Books which have stood the test of time and been re-issued. Unlike modern publishing and internet “information” (and especially PDF’s and self-publishing) they were peer-reviewed and authoritative when they were written, and are at least to some extent vouched for. Whereas online, anyone can “publish” anything, and most of it is written within a kind of sales/promotional/marketing context and background, and frankly a lot of it is junk (in my opinion).
But if you have specific subjects/questions/areas you want links about, regarding forex-trading, try me, and I’ll certainly post what I can, [I]if [/I]I can.
To further prove the power of Risk Management, I read an article that helps put things in perspective. I wish I would of saved a link to provide. Long story short this trader wanted to prove how powerful a R:R is and to always stick with your rules. He [B]randomally[/B] opened multiple trades using only a 1:2 R:R and just let them do their work. Keep this in mind he did this without looking at any charts/ strategy,…anything. After all trades had closed he had a small profit, I think out of 20 trades 40% were winners and 60% were losers. If memory serves me correct he risked something like $100 per trade. So subtract the winners ( 8 $200)= $1600 from the losers (12$100)=$1200 and you get a profit of $400 (20%).
Out of 20 trades, the first 8 closes were consecutive losses. With that in mind he still ended up profitable. I know many of us would of closed all our positions immediately if we injured 8 consecutive losses in a row without any winners.
That article helped me put things in perspective as to why you should never double down, stick with your rules, and don’t let your previous trades affect your future ones. So Imagine using a proper trading strategy with a proper risk reward.
Right level of risk/reward ratio is absolutely crucial and if we are not having it then we could be in for huge difficulty. I always maintain 2 levels of it. First, if I am uncertain and if the situation demands for it then I go for 1-2% risk maximum, but if I am sure then my 2nd gear comes in. This is where I am ready to go up to 10% or 15% risk, but as I said this is on situation where I am extremely certain about everything.
I better believe that we should only take those amount of risk that we afford to loose and more over forex trading requires money and risk management if anyone wishes to succeed.
Although many people “harp” about the R:R most people don’t teach you the difference between “Expected R:R and REAL R:R”. The expected R:R is basically where you put your SL (amount of your account you are willing to risk as loss) and the reward (amount which you would win if your tp is hit). Typically people aim for anything higher than 1:1 but the REAL R:R is the amount of pips you are in red before your tp gets hit! So you could have an expected R:R of 1:1 and have a REAL R:R of 1:7
So when a person speaks about their R:R, simply ask them for their track record from myfxbook or fxjunction and you will clearly see what their REAL r:r is. So I guess what I am saying is don’t put much importance on “What R:R you should use” and instead focus on “How accurate can my entry be” so that your REAL R:R is out of this world.
