MoneyTec Traders Community Forum - View Single Post - Why we are taught to set risk/reward ratio larger than 1

Truville · 21-10-2003, 11:08

I’m not sure I get this.

Yes,1:3 is good, but 1:4 is better, and 1:8 is really great! Why not 1:8.354? How about 32:98.321?

The risk/reward ratio you are describing here has no basis in reality. It’s just an arbitrary number. Nice and round so it’s easy to calculate, and not too high because that would seem odd.

Let me suggest something. Instead of letting a signal make your entry then deciding arbitrarily on how much you are willing to risk/make; how about letting a signal make your entry, AND your limit, AND your stop?

For example, if you use MACD for entry, why not let it ride until MACD says otherwise? Let it tell you what to do!

Stating from the beginning:
“I will risk $1000, or $100, or $231.45”
“I will make $350, $34.21, or $12.99”

Is no better than guessing.

21-10-2003, 11:08	#3
Truville Bye everyone! Join Date: Jul 2003 Posts: 416 Downloads: 0 Uploads: 0 Rep Power: 0	I’m not sure I get this. Yes,1:3 is good, but 1:4 is better, and 1:8 is really great! Why not 1:8.354? How about 32:98.321? The risk/reward ratio you are describing here has no basis in reality. It’s just an arbitrary number. Nice and round so it’s easy to calculate, and not too high because that would seem odd. Let me suggest something. Instead of letting a signal make your entry then deciding arbitrarily on how much you are willing to risk/make; how about letting a signal make your entry, AND your limit, AND your stop? For example, if you use MACD for entry, why not let it ride until MACD says otherwise? Let it tell you what to do! Stating from the beginning: “I will risk $1000, or $100, or $231.45” “I will make $350, $34.21, or $12.99” Is no better than guessing.