Risk Reward Ratio

[TradingFan2024]

Hello to all. I just went through the Reward-to-Risk ratio, and was curious about the RR you aim for in your trades as well as the type of trader you are. I see videos on the net of traders sometimes getting around 10:1 RR, and was wondering if such gains could be achieved by relying solely on trading support and resistance as well as breakouts. Thanks

[Profitpilot]

@TradingFan2024

Hello to all. I just went through the Reward-to-Risk ratio, and was curious about the RR you aim for in your trades as well as the type of trader you are. I see videos on the net of traders sometimes getting around 10:1 RR, and was wondering if such gains could be achieved by relying solely on trading support and resistance as well as breakouts.

Hi! Personally, I aim for a 2:1 RR ratio in my trades. While 10:1 RR is possible, it’s rare and often depends on market conditions and strategy.

[S_Jane_M]

There’s always quite a bit of confusion,in forum conversations, between risk-to-reward and reward-to-risk.

The “industry standard term”, for what it’s worth (if anything) is “risk-to-reward” so having the reward twice the size of the risk is normally stated as “1:2”.

My own belief is that almost no retail CFD traders are steadily profitable with net reward greater than net risk. In forums, of course, everyone’s profitable, and they’re all trading with something like 1:2 (reward twice the size of risk) but out there in the real world, I think it’s actually very, very different.

I generally use 1:1, sometimes even 0.75:1.

This little thread is well worth reading:-

1 to 1 risk to reward ratio

there’s either a minor typo or a major arithmetical mistake in that sentence if you have a risk-to-reward ratio of 1:2, any win-rate above 33.3% is profitable (ignoring commissions/spread) if it had the best net expectancy, yes, of course but it takes a lot of methodical observation, testing and calculation to know that with confidence you’ll often see “forum advice” never to trade without a 1:2 ratio or better this is truly horrible advice: it means that you’re necessarily going to have …

And for anyone surprised, these posts may help or interest the minority of people willing to read them with an open mind and perhaps re-think the majority forum/Youtube/website/vendor view they’ve always accepted before …

Zone recovery strategy

If you can “only win 40% of the time” then all the people sitting on trading floors earning 7 figure salaries and bonuses (even if they’re almost all virtual trading-floors, these days) must be doing something terribly wrong, because they seem to believe the exact opposite!! This myth just won’t die out. At least, in forums full of struggling retail traders it won’t die out. And it gets continually reinforced on Youtube, in PDF’s and on websites where people are selli…

Trading strategy for better risk reward

thanks for starting this thread, Carl the wording you chose for the title also raises the bigger question of what is a “better” risk to reward ratio we can all see that you think of it as bigger reward per unit of risk, rather than the opposite you mean “higher reward”, really, when you say “better” the opposite perspective is also an arguable one, though two points are worth thinking about, in this context if you look at successful professional traders, and institutional traders, they t…

Take profit level

it’s one of those things where forum/youtube/e-book opinion is radically different from professional and long-term-successful opinion quite often in forums i even see people advising beginners not to trade with an r:r of less than 1:2, which is really horribly bad advice, especially for beginners (which of course i know you are not!)

[tommor]

Even if your win rate is only 55%, a r:r of 1:1.5 is adequate.

[S_Jane_M]

@tommor

if your win rate is only 55%, a r:r of 1:1.5 is adequate

This would be really good!

Even if you only traded once a day, 20 times a month, and risked 1% of your account on each trade, and compounded only once a month (though why would you?), over the course of a year you’d still make about 138% profit. I suppose you should take something off for August and Christmas being dead, and for bank holidays and so on, but even so, you’d more than double your account, over the year.

I wonder how many retail forex traders regularly achieve that?

[steve369]

IMO it is better to follow the price action movement generated by Order Flow, because that is an ideal strategy to assess where the T/P TREND is likely to move to a positive probability of a winning trade, which is following the previous support and resistance zone.

As for RRR, it is just guesswork and should be dumped in the garbage, because the T/P is never the result of a trend strategy.

[S_Jane_M]

@steve369

IMO it is better to follow the price action movement generated by Order Flow

Sounds nice.

It’s a shame the only “order flow” that any spot-forex CFD “broker” can ever give you is the “order flow” among their own customers, what with spot not being a centralized market, and no market information like actual order flow or actual volume therefore being available to anyone.

These are the “orders” of people betting against a counterparty.

They don’t hit the market.

No currencies change hands.

None of these “orders” affects any live market at all.

There’s no liquidity being added: they’re only simulated “orders”.

[EmeraldEyes]

Pockets of retail orders get hedged or passed through on spot. FX derivatives (vanillas, exotics) get exercised & hedged on spot market as well. Agencies like Bloomberg often report large bids & offers from SWFs which affect spot pricing.
Order flow is metagame for spot, can be deciphered by reverse engineering a trade. Ie; Everyone enters on different criteria, but will place their stop loss orders in the same pattern. Almost always a swing high or low. Large traders can’t execute without opposing order flow, being able to only enter when stops are ran in the opposite direction.

[samewise]

@steve369

IMO it is better to follow the price action movement generated by Order Flow, because that is an ideal strategy to assess where the T/P TREND is likely to move to a positive probability of a winning trade, which is following the previous support and resistance zone.

Do you trade futures?

[steve369]

I just trend trade forex currency pairs following a weekly chart.

[samewise]

So do you have some trades open for weeks and months?

[steve369]

I trend trade, and set my T/P & S/L from the last night’s weekly candle providing that the 4Hr chart is in sync with the same price movement. Nine times out of ten the trade is not open the following morning.

You could say that the trend trade is a daily movement within a weekly chart. What I look for is a few candle movements up or down and then tag along with it. The nicety is following ‘weekly’ price movement maintaining the same direction each day.

However, these trades could be expensive as I look for a $50 maximum.movement.

[jomina]

@TradingFan2024

Hello to all. I just went through the Reward-to-Risk ratio, and was curious about the RR you aim for in your trades as well as the type of trader you are. I see videos on the net of traders sometimes getting around 10:1 RR, and was wondering if such gains could be achieved by relying solely on trading support and resistance as well as breakouts. Thanks

I’ve seen traders hit 10:1 RR, but that often requires a lot of experience and skill, especially in using strategies like support, resistance, and breakouts. What RR do you aim for, and do you think it’s achievable with these strategies alone?

[EmeraldEyes]

You can do 1:10 & win 10% of the time, 10:1 90% win rate, 1:1 50% win rate. All same expected outcome.

[MattyMoney]

@S_Jane_M

I generally use 1:1, sometimes even 0.75:1.

This is generally where I’m at as well, sometimes even less. I trade on higher TF’s and use wider stops so the win rate is quite high with this approach. The only downside to this is sitting through periods of drawdown.

To get 2:1, 3:1, or even a 10:1 risk/reward jackpot, you’re sacrificing a lot of smaller wins.

[TradingFan2024]

I mainly trade support, resistance, follow the trend, and use Fib retracement, so 10:1 RR is highly unusual.