There has been a lot of mention about risk/reward ratios but I do not recall any that discuss exactly how that is calculated. Obviously if the TP is 3 times further than the SL, that would make a 3:1 ratio. However that says nothing about the expected direction of the trade. All things being equal (which they are not), that would make the SL three times more likely to get hit, thus making the trade 3x more likely to be a loser.
Even with a set R/R you also need to have a exit strategy for your system. The market wont meet the r/r requirements on every single trade so having an exit strategy can and will eliminate some risk.
I would assume that the exit from the trade would already be predetermined by whether either the SL or the TP is hit. I use multiple lots so that whatever risk/reward I assume is averaged out over a range.
Yea I understand but I mean a manually exit strategy. Eg. a MA cross, reversal candlesticks, news etc. I too have a r/r ratio that I set initially but I also have a manual exit strategy in the event the market should reverse. You will find at times that the market will go close to TP then return to your stop to close at a loss, this can be avoided for the most part by using manual exits. Minimizing your risk is key regardless of the win % of the system.
That’s great if you are able to actively manage a trade in progress. I like the idea of using a trailing stop when something comes close to hitting my original TP.