Thoughts on minimum pip gain benchmarks/standard

Trading Systems
21

Hey good question. I take into consideration how many pips to target each trade. Here’s a quick guide and rough estimate which helped me achieve success:

Scalpers 5-20 pips (usually not beginners)
Intraday 20-50 pips (same)
Swing 50- 200 pips (I suggest start here)
Long term/hegde hundreds - thousands of pips (firms, corporations, “Smart money”)

Like stated in another comment, pairs matter too. GBP and JPY pairs move a lot as well as powerhouse pairs like EURUSD.

Hopefully this helps point you in the right direction!

22

To clarify I am understanding the order of RR being discussed here, you are saying that most successful retail traders shy away from an overtly positive risk-to-reward, such as risking 1 to gain 2, and instead end up in the 1 to 1 range. And that even some of them dip into the negative range, risking a touch more than they are shooting to gain? Is that correct? If so, I find that very interesting and worth researching. Thank you.

1 Like
23

Some major full-time traders do not even think in terms of R:R.

I think there is a danger in getting too tied to such rigid thinking. In theory, it does make sense to mathematically define your ratio of profit to loss and combine that with your win rate. But, it also depends very much on how one trades.

A scalper or “set-and-forget” trader might just set the levels and let each trade play itself out. Then the R:R and win rate are critical.

But a day trader or swing trader may set R:R levels that, on the face of it, are outrageously bad! For example, in some cases I might set a mental stop at the area where, if reached, I no longer want the trade, but I always set a hard stop beyond that which would only get hit in the event of a major extraordinary move. It is a safeguard, or aka “airbag” type stop that is not intended to actually get hit except in the case of “emergency”.

But the point is really, that R:R should just give indicative levels to help judge whether a trade makes sense and is worth taking.

Whether to choose 1:1 or 1:2/3 etc can be put into words that maybe makes more sense. The first and biggest consideration is how much risk can I take. This is a combination of pip distance and position size. If the stop is too close there is the risk of being frequently accidently hit. If it is too far then the account equity will suffer too much.
Having set the risk level, then we can look at the likely profit the market could be expected to give. This is based on our analysis. If the target is too close then the trade is not worth it. If it is too ambitious then the market might never reach it even if we are right.

So we might find that, over time, a market reaches a R:R target even 75-90% of the time. So a lot of smallish wins. But a R:2R+ needs the market to either trend a lot or at least make regular good moves. If this doesn’t happen then there will be more fakes and reversals and a lower win rate.

The trader gets a feel for the market and can decide which approach suits its characteristics best depending on what type of trading they are wanting to do. For example, I am primarily a day trader and I use approx R:R. But on occasional longer term trades I am, by definition, anticipating more than that.

And a trader who uses just trailing stops and no target, only has a ratio of R:? :grin:

1 Like