Risk Reward: 1:1, 1:2 or 1:3
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Thread: Risk Reward: 1:1, 1:2 or 1:3

  1. #1
    The Risk Reward question bothers me again and again.

    I´m not really sure which you take. Clearly the 3:1 RR appears to be the most profitable person but is that really true?

    I mean, it is difficult to get a winner that is three times my potential risk.

    Obtaining a winner that has the exact same number of pips such as my risk is significantly simpler to get.

    Has anyone experiences with that topic? Personally I tried the 2:1 RR and it was okay. Im testing the 1:1 RR and the winners come much easier.


    What do you guys think about this?

  2. #2
    Interesting thread! :--RRB-

    After a lot of trial and error, I pretty much stick to setting a TP at 2R the majority of the time. This does of course mean that I overlook the big winners however that I find my equity curve is a lot easier this way. This means my psychological condition is much more consistent since I don't have a string of losers or transactions while waiting for the 3R transactions. I don't trade frequently so this is essential to me.

    This is just my opinion of course but I believe it's down to individual emotional make-up. At the end of the afternoon you need to decide which causes the most anxiety, banking and seeing the move continue versus not banking and seeing the move retrace. It is about being consistent once you make your choice. Or every time there is a trade going to run and run, understanding and behaving. However, I don't think any of us can do this!

  3. #3
    My thought on RRR is it is nothing but a formula to compute you risks administration to stay ahead and stay profitable regardless of what the outcome is. Its not an trading indicator.
    Simply put if you have a trading strategy with a win-loss precision of 50% means that the RRR needs to be more than 2 to be consistently profitable with a continuous trading lot throughout. The more complicated the WL the lower the RRR and vice versa. Some may use position sizing along with procedures to circumvent this formula but the main point is you should comprehend this fundamental before trying to place size or cross hedging strategy to maximise profits or to mitigate losses.
    The OP claimed that despite his RRR is 3 and 2 and yet he still wind up negative general is becos his WLpercent is under the required ratio to stay profitable.
    My risks management is based entirely on this formulation only as my trading plan is higher than 70%. And any trading strategy with a WLpercent more than 50% can be exploited profitably having a implementation entry level except to remain robust the WL gt; than 60%. Which can greatly instil confidence to ensure subject to adhere to the transaction thru regardless of what and the PA becos you will remain in profit regardless of the outcome.

    GS

  4. #4
    When you speak about win-loss precision% you have to connect it with R:R. For instance, a 50% win-loss precision doesn't exist. Only a 50% win-loss precision at Rof 1:1/2:1/3:1/... exists. Generally the higher the precision, the lower your R:R.

  5. #5
    Quote Originally Posted by ;
    If you talk about win-loss precision% you must associate it with R:R. For example, a 50% win-loss precision does not exist. Just a 50% win-loss precision at Rof 1:1/2:1/3:1/... exists. Generally the greater the win-loss precision, the lower the R:R.
    50 percent WL precision in the circumstance of each individual trading program and if you do not have a trading plan I would assume either you do not plan to exchange or you do not have one.

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