There is no holy grail in straight beating the market. If the market pricing is efficient, then current price will not matter. Since we pay the spread, we are not able to profit from a 50% win rate and 1:1 R:R. It is possible to find a strategy that wins 48% of the time with an even distribution of wins and losses, you’ve found an edge.
ie; A strategy in 40 trades that wins 19 times and loses 21. Find one that distributes those Wins and Loses evenly, just double the position size after every loss and you’ll double accounts more often than not.
But as good as the story of the fund manager who, after he retired, wealthy and feted, was asked what was the secret of his success. He replied that when he drove into his office each morning, if he had more green lights at junctions than red lights, he would have his traders buy: if there were more red lights than green lights, he would tell them to sell.
These statistics you’re posting are nonsense. A 1:3 ratio has no predetermined probability. The strategy might, so maybe you’re just using a bad strategy.
Not that I think r:r is something that should form part of your strategy.
This thread in particular is, I believe, an invaluable contribution to this website.
What I think about risk/reward ratios were I to spell it out I know for sure I would get permanently banned from the site. Suffice to say the strategy I developed has nothing to do with risk/reward ratios. In fact many of the times my risk/reward ratio is in reverse, lol. Having said all of that though to those who use it and are successful more power to you.
Real life backtested years of BTCUSD XAUUSD EURUSD GBPJPY. The most consistent form of trading was using a 1:1 R:R. Its outcome (when using large enough SL TP so that spread is not a factor) above 50% is your trading edge, below is the result of poor trade selection. I can get 51%-53% wins by entering trades where retail stop orders are placed.
It doesn’t work like that, there is no direct mathematical relationship between win rate and r:r. All you can say for sure is that a r:r of 1:3 will have a lower win rate than a r:r of 1:1. Without details of the strategy, that’s it.
There is a direct relationship. This is why you broker is making money being on the other side of a 1:3 RR trade. Wouldn’t brokers be going out of business if all the 1:3 traders cashed out on more than 50% of their trades?
If the market is efficient - meaning liquid and tight spreads - price level for trade entry will not matter. Price is always correct.
If there was a particular strategy of entering the market based on an inefficiency, it would be traded and corrected back to being efficient. Try broker arbitrage and see how many milliseconds it takes for a broker to correct their pricing.
There is a relationship but it is not calculable without knowing the strategy. All we can say is that there is a correlation between low win rates and high r:r.
A r:r of 1:1 does not automatically have a win rate of 50%. It depends on the strategy. In the same way a r:r which is increased by 2x, to 1:2, does not have a win rate which is reduced by 2x, to 25%. The win rate will definitely be lower but that’s as precise as we can get without details of the strategy.
Without taking spread in to consideration (broker’s edge) any strategy not subject to market volatility (broker’s variable spread) will have the same outcome. They really start correlating when SL is beyond 1 ADR.
If a ‘strategy’ of trading has a higher probability of an outcome than it’s win rate, it’ll be traded until efficient.
So if one coin flip is 50% win rate, doubling the reward will lower the odds by half, getting a 25% win rate. A stat in which most traders cannot beat and eventually lose an account on.
Thank you. I believe you think certain strategies can outperform the market by using historical data to validate it. No historical price action, indicator, past performance is indicative of future results. If there was an edge in doing so, your broker would do the same they do with Informed traders; pass your order on instead of trade against it.
Listen, I have no clue as to what you are rambling on and on about, trust me. You asked a question and I gave you a specific answer to what you asked. I dont complicate this business of forex trading as you guys seem to do. My thing is quite basic in that I view forex trading as a simple game of gambling where I buy what is going up and sell what is going down. That’s it.