Risk reward trouble

Beginner Questions
1

Hi everyone, I’m having some trouble calculating risk reward in my trading system. This is because my system has I suspect a slightly negative ratio, and a non straight forward profit trading setup.

I use a t1 t2 system like Kathy lien. So for example if my stop is at 30 pips, it’s not uncommon for me to have my first take profit set at maybe 20 pips, and once that is hit I sell half the position, move my stop to break even, and our a trailing stop into place.

Is there any way to calculate a risk reward ratio for this given that all the inputs aren’t firm at the time of placing the trade? I understand that in your journal you are meant to have the risk reward of each trade as a data point, but obviously I can’t do that yet…

2

I dont think itll work in the long run of you’re always taking half profit at less than the risk. Back to the drawing board for you, find a new strategy or change your take profit method.

3

If you don’t know the risk attached to a strategy, don’t use it. Its like a car that may or may not have brakes.

4

The Risk Reward ratio is usually named before the trade is taken, not during. If you are pre-planning to take partial profits, you could do it one of two ways.
Let’s say for example that you enter 1000 units with a stop loss at 30 pips. You plan to take half profits at 20 pips, and the rest of the position at 60 pips.
The first way is to say you are entering 1 trade with RR of 30:40 (20+60)/2
The second is to consider it 2 trades - One trade is risk/reward 30:20 and the second trade is risk:reward 30:60

5

Thanks everyone for your wise comments and also Phaz3d for this info. Your first calculation makes sense to me if one is using two take profit targets. The extra step of complexity I’ll have to work out is how to quantify the reward at time of trade for T2 when T2 is a trailing stop…

I’m clearly a newb and also no math expert, but I think I can come up with something that is quantifiable and measureable. I might need to settle for a “minimum” risk reward calculation. Something like:

reward = T1/2 + The minimum possible value of the T2 trail.

Apologies for not mentioning this earlier, but obviously I am in the simulator, and will be for some time.

6

If you’re using a trailing stop, I wouldn’t get hung up on RR too much. RR is generally meant for traders to assess a position that has fixed tp/sl and is generally not as useful when a trade is going to be managed during the trade. So while personally, I wouldn’t bother with it, I think it would also be acceptable to say something like 30:20 with trailing stop for journaling purposes.

7

Thanks again Phaz3d! I’m going to persist with this system and plan until I have 100 trades worth of data points to have a look at, then I’ll re asses.