What’s the most effective way to use money management / risk reward when trading
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R/R level should be at least 1 to 2. Meaning that if you win once and lose twice then still have not lost any money.
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At least a 1:1 ratio should be fine. Just don’t take trades with more risk than reward. You can also use reward-to-risk ratio to filter the setups you actually take.
Good luck!
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[QUOTE=“BigPippin;615719”]At least a 1:1 ratio should be fine. Just don’t take trades with more risk than reward. You can also use reward-to-risk ratio to filter the setups you actually take. Good luck![/QUOTE]
What would a good set up like that look like 1:1 or 1:2 ?
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[B] 1:1000 !!! [/B]
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Hello libertysilver, I think that there are three elements at play here:
- the Risk-Reward ratio itself;
- the type of currency pair and its value-per-pip;
- the size of Stops and Limits used, and the pair’s expected volatility.
Point 1) by itself is a very mechanistic view of trading: no two currency pairs are created equal, so points 2) and 3) must be part of the calculation of your risk management and exposure…
What do you think?
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[QUOTE=“PipMeHappy;615772”]Hello libertysilver, I think that there are three elements at play here: 1) the Risk-Reward ratio itself; 2) the type of currency pair and its value-per-pip; 3) the size of Stops and Limits used, and the pair’s expected volatility. Point 1) by itself is a very mechanistic view of trading: no two currency pairs are created equal, so points 2) and 3) must be part of the calculation of your risk management and exposure… What do you think?[/QUOTE]
I agree some pairs move more then others and require larger or smaller stops for instance u wouldn’t use the same r&r on a usdcad then on a gold chart gold moves much more pips than usdcad , but what I was asking really is what’s a good strategy / set up to use or how would u calculate proper risk on each trade
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Anybody have any suggestions
This thread has collapsed! Perhaps this topic has been overcooked, given that there have been many threads dedicated to it…
Libertysilver, have you read any articles that you would like to share with the collective, on the chosen topic?
Cheers.
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This thread has collapsed! Perhaps this topic has been overcooked, given that there have been many threads dedicated to it…
Libertysilver, have you read any articles that you would like to share with the collective, on the chosen topic?
Cheers.
Not really no I was hoping to get some good insight in r&r but I guess the thread is dead so may I will just do personal reaseach
I think the problem may be that your question is not specific enough? The general rule as stated below is the RR should be a minimum of 1:1, preferably 1:2 or greater. This means you can be wrong half of the time @ 1:1 and still break even. And way less with 1:2 and up. There are some very profitable professional traders with a win rate of less than 50%… just something to bare in mind. As to what strategy to use and the RR to employ? From what I have observed, range traders look to 1:1. Breakout, position and swing traders tend to look at 1:2 and up. I can confirm that as a long time swing trader, I look for a minimum of 1:2 and often catch a 1:4 if I close out most of the position and let it run.
Just my two cents. I agree, do your own research.
Thanks r carter yeah I was looking up & 1:2 seems like a good r&r for me.
Also how would you calculate that ratio with a
$500 account vs a$25,000 account it’s much easier to do that ratio on a large account I find becuase on a small account you would have to risk more to make more or els it would take much longer to grow your account . Also what would be the proper lot sizes?, if you enter with a big lotsize your obviously risking a lot of your account on a trade for instance opening $5 per pip on $500 dollar account would be risking a little much no …? I guess it depend on the pair as well to but do you kinda get what I’m asking ?
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Ah that’s a very different proposition altogether and the downfall of many an aspiring ‘newbie’ trader! My advise… always keep the lot size (or lot sizes) to 2% or less of your account balance as a stop. Equally important… one trade at a time! Caveat… if the first trade goes positive and you’ve moved your stop inside the trade. Then its a free trade and you can if desired go hunting a new.
Lets look at this logically? So you may be starting out with a small account balance? Fine, but never try and ramp up the lot size to get a quicker return. Its folly, plain and simple. Risk and were not talking RR here, increases exponentially! You need to be around next week, next month and next year to make money in this game.
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[QUOTE=“R Carter;616367”] Ah that’s a very different proposition altogether and the downfall of many an aspiring ‘newbie’ trader! My advise… always keep the lot size (or lot sizes) to 2% or less of your account balance as a stop. Equally important… one trade at a time! Caveat… if the first trade goes positive and you’ve moved your stop inside the trade. Then its a free trade and you can if desired go hunting a new. Lets look at this logically? So you may be starting out with a small account balance? Fine, but never try and ramp up the lot size to get a quicker return. Its folly, plain and simple. Risk and were not talking RR here, increases exponentially! You need to be around next week, next month and next year to make money in this game.[/QUOTE]
Okay your sayying risk 2% of your account that’s still pretty high 2% of 500 is $10 just using this figure as a example : Would that not be alot to risk on a 500$ account that would be $10 a pip would it not ?
So trading $5 a pip on $500 account wouldn’t be that bad then.? I would say that’s pretty high of risk unless you mean trading 10cents a pip witch I think would be a waste of time you need 100pips for $10 I guess it would work out to $1 per pip on $500 account no ? That would be some where along the lines of %2
No that’s not what I said. 2% of your account balance as your [B]stop[/B] on a trade. To work out what this will be as lot size re pips stop, go to BP school section.
Let’s say a trader purchases 100 shares of XYZ Company at $20 and places a stop-loss order at $15 to ensure that her losses will not exceed $500. Let’s also assume that this trader believes that the price of XYZ will reach $30 in the next few months. In this case, the trader is willing to risk $5 per share to make an expected return of $10 per share after closing her position. Since the trader stands to make double the amount that she has risked, she would be said to have a 1:2 risk/reward ratio on that particular trade. The optimal risk/reward ratio differs widely among trading strategies. Some trial and error is usually required to determine which ratio is best for a given trading strategy.
Hi Liberty, agree with Pipme on this point. It will vary based on Stops. Developing RR is a strategy itself based on the system you run.
The ideal calculation for money management is $Risk/Pip Risk required = position size. So essentially you need to have a reasonably wide stop, so this can be challenging for a risk reward on a shorterm trade, seeinn volatility can be unpredicatable in a now rigged market place by HFT market makers.
Standard idea of risk reward is simply ratio based e.g. 1:3, etc. This is a little arbitrary so the Dollar risk is more important and stop placement. Which means calculating the average volatility, you can use the ATR to a certain degree but I prefer the peaks and troughs for stops, this should help you eliminate getting into trades that require too much risk (even though it doesn’t matter as your $ risk is the same). You will just have to wait longer to relise a profit as volatility should be both ways, so a wide bearish movement will eventually lead to an extreme buy up.
So really if you are doing 1:1 or 1:2, then it is probably because the volatility is not allowing for more than such gains especially when markets are sideways. The only way you get really high RR is if you attempt to sell tops and buy bottoms and keep stops tight (pattern trading idea) or you trade breakouts and hold those trades as I did with Cable before the Scottish referendum for those of you who followed me on that trade, I also remember my good Pal Pipme picking more than 400 pips on one of those collapses. In that case my RR was like 1:5.
This will also vary on the market as well…
Hope this helped.
2% of $500 = $10 Risk/Stop
Position size = $10/50 pip required stop based on volatility = 0.20 or 0.20c per pip.
Volatility would determining reward, high volatility may yield you $20 or you may only get $10 based on your exit plan but good stop placement will increase your win potential.
The Turtle traders used the exact same philosophy to become successful and they traded an indicator called the Donchian channel with clear money management rules and the idea was to catch breakouts across a diversified portfolio.