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[mindgame]

Having a profit target twice or three times the size of your stop isn't an adequate way of assessing risk. If it happens that there is a low probability of the market reaching your target and a higher likelihood that the market reaches your stop, then your risk is higher than for a trade where the stop is twice the size of the target but where the probability of reaching the target is high. Unless you start work on probabilities then sizes of stops and targets are going to be pretty meaningless in your efforts to manage risk.

[MickMason]

I guess that's the reason for setting realistic and meaningful stops and targets

[weak_trader]

Hi

I prefer swing tradnig and try to catch move that come along the major trend. That's the way to increasing probability of TP instead of SL... SL becomes a place where U can definitely say that the trend is over ...

SeeA

weak_trader

[Mr 50%]

It always comes down to setting relistic targets and solid stops that should not be hit.

The 3-1 reward to risk ratio is not so unchievable as it sounds, espeically if you concentrate on trading with the trend, rather than corrections. Even then proper timing on corrections can also achieve near 3-1,sometimes anway.

take a typical correction which carries to 38.2% or 50% of a swing. Entering on a reaction (trigger) from these areas in direction of the impulse swing carries a relatively low risk as generally an impulse wave will carry for a target 1.382% to 1.618% of a corrective swing, which would equate to a risk /reward of at least 2-1 and probably nearer 3-1.

Now the market may or may not achieve the target, but as long as you move the stop as the market moves in your favour your following the system that has a preset target of approx 3-1, even if it fails would still get you out with a profit.

Thus the reward to risk ratio is very important as your unlikely to have more winning trades than losing trades, so avoid scenerios which are unable to generate a realistic reward to risk of 2-1 or more.

[mindgame]

A way of looking at it:

My stop relates to my target in the way that if it is hit, then the probability of the market reaching my target has fallen below my required acceptance level. Basic probability is measured by price and isn't particularly useful on it's own. More complex estimations can come from models driven by order analysis.

[Danubrata]

Well, It is very good to make money management as a trading plan. I usually use Risk to Reward Ratio as 25% : 75%. It means 25 % is for cut loss and 75 % for optimum Taking Profit which is divided in 3 levels. There are 15% (Level 1) + 25 % (Level 2) + 30 % (Level 3) and it's calculated from its margin requirement per lot. The levels are used to measure market strength movements or as trailling stop. Never trade above 20 % of your total capital per transaction. Above all, discipline is the most important to be a successfull trader.

[Fxexcel]

Hello mindgame,

You are right about your assesment about the RR ratio and the accuracy of the system. But take this in consideration, to meassure the effectivenes of a system there are three points that should addresses:
1. The probability of success
2. RR ratio
3. Frecuancy of signals

Probability of success is something you do not have control of, you might have the accuracy of some historical trades, but that doesnt mean you know the accuracy for the next set of trades, thats up to the market. On the other hand, you do have "control" of the RR ratio used in your trades.

Trying to control something you will never be able to control could be dangerous.

Regards
Fxexcel
www.straightforex.com

[fadsam]

it not come from pt it depends on the system you use
following your system must generates average of the wining trades 2 or more of the average loss trades
that's it !

[comenow]

Originally Posted by Fxexcel

Hello mindgame,

You are right about your assesment about the RR ratio and the accuracy of the system. But take this in consideration, to meassure the effectivenes of a system there are three points that should addresses:
1. The probability of success
2. RR ratio
3. Frecuancy of signals

Probability of success is something you do not have control of, you might have the accuracy of some historical trades, but that doesnt mean you know the accuracy for the next set of trades, thats up to the market. On the other hand, you do have "control" of the RR ratio used in your trades.

Trying to control something you will never be able to control could be dangerous.

Regards
Fxexcel

Mindgame knows what he is talking about, if I may say so. I think you have more control on the probability of success than on rr ratio. The idea that you can control your risk reward ratio is literally true, of course. But in practice, I have noticed new traders get in trouble and lose all their money believing that will make them money. What conventional RR analysis does is (perhaps) delay the inevitable end of the novice's career. Think about this: the reward you are calculating when you calculate RR before a trade is an illusion. It doesn't exist. However, the probability of you winning or losing is very easy to calculate by looking at the odds.

[chanver]

I Have Traded Live For 1 Year. 139 Trades With 112 Successful Trades And 27 Losses. Average Losses 38 Pips And Average Gains 14 Pips Which Translates Into A Yield On Capital Of Approx 30% For The Year. My Problem Is That I Tend To Liquidate To Soon When I Am Positive In A Trade, Any Suggestions?

[juol]

I'm a beginner and I've gotten some good points on this thread. Thanks for all your advice and posts.

[Rocko1]

Originally Posted by Fxexcel

Probability of success is something you do not have control of, you might have the accuracy of some historical trades, but that doesnt mean you know the accuracy for the next set of trades, thats up to the market.

That's not necessarily true. With enough quantitative data, and if executed flawlessly, you know the result would end within a skewed distribution 3 standard deviations of the expectancy 89% of the time.

[DarenPowell]

Take a typical correction which carries to 38.2% or 50% of a swing. Entering on a reaction (trigger) from these areas in direction of the impulse swing carries a relatively low risk as generally an impulse wave will carry for a target 1.382% to 1.618% of a corrective swing, which would equate to a risk /reward of at least 2-1 and probably nearer 3-1.

[msforex84]

i agree with fadsam. It really depends on the system you use.

[jeff15]

Originally Posted by mindgame

Having a profit target twice or three times the size of your stop isn't an adequate way of assessing risk. If it happens that there is a low probability of the market reaching your target and a higher likelihood that the market reaches your stop, then your risk is higher than for a trade where the stop is twice the size of the target but where the probability of reaching the target is high. Unless you start work on probabilities then sizes of stops and targets are going to be pretty meaningless in your efforts to manage risk.

Hi

This is Jeff. When you Trade in Forex Market you have to assess your Risk appetite ,and before making a position you must know the risk and reward ratio of the trade which you are going to initiate.
Obviously the reward must be three times of the risk of particular trade/position. if your trades are creating conflicts to mange the risk so you should go for another trading strategies like swing trade ,range bound trading ,scalping. And scalping is a best strategy for a day trader.