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R/R for NQ - Intraday


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R/R for NQ - Intraday

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  #1 (permalink)
sadago
Melbourne
 
 
Posts: 16 since Sep 2019
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What’s your Risk/Reward ratio for NQ futures - in Intraday trading?

Obviously, I would like to hear from folks who have seen higher % of success with this R/R !!!

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  #3 (permalink)
 glennts 
Corpus Christi, TX / Westcliffe, CO
 
Experience: Advanced
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Broker: DDT / Rithmic / Kinetick
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There is no "one size fits all" solution for determining an appropriate R/R ratio. Your risk is determined by your entry. Your entry is determined by what ever method, or lack of method you use to pull the trigger. Someone who is buying support will have less exposure to risk than someone who is buying the break of resistance. Although the person buying the breakout will have more exposure to risk, assuming their stop loss is placed below support, that trade will have somewhat higher degree of confidence in that the move is already underway. If I get long 3 ticks above what I deem to be solid support, my risk is 4 - 5 ticks. If I buy the breakout of resistance which may be 15 ticks above support, my stop is still going to be placed below support, allowing for price to re-test the area of support before resuming the push higher. With higher probability comes the trade off of higher risk, assuming you use s/r for your stops and entry. So.... what's the best R/R ratio for the NQ. To choose 5, 10, 20 ticks is to make a random decision that ignores the reality of where you have placed your bet and how that decision determines the potential risk you have exposed yourself to and the room your trade needs to do what you think it will do.

One exercise that may help you understand this problem better is to use an indicator that will de-trend price and create an oscillator. For example, if your system was to buy the break of a prior bar's high when that prior bar closed up after x number of bars closing lower and you create an indicator that plots the current bar relative to the prior bar's high, the high of the prior bar would become the Zero Line of your oscillator and you can then observe how much price pushes below the prior high before reversing higher. Deconstructing your strategy this way will help you develop a realistic understand of risk exposure. If you don't have a formal set of rules to standardize your entry/exit decisions then your trades will be random, your risk exposure and profit potential extremely variable and getting a handle on reasonable R/R is not going to be possible.

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  #4 (permalink)
 WoodyFox 
Orlando, Florida
 
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Over the long term you can expect to see a 3/1 ratio. That's the best long term ratio to maximize profit and smooth out drawdown that I have found for intraday. The swing long term ratio for me is slightly better and also much better in terms of profit and smothing the drawdown.

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  #5 (permalink)
 glennts 
Corpus Christi, TX / Westcliffe, CO
 
Experience: Advanced
Platform: NinjaTrader
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Trading: 6E, NQ
 
Posts: 106 since Oct 2010
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A real problem with discussions of this sort is that traders will frequently get involved in an interesting conversation without actually talking about the same subject. One person's opinion about a realistic R/R is based on their experience with their trading approach... the size and type of the bars they chart, what triggers an entry, do they use a fixed stop and then use a trailing stop, what gets them out of a trade. Unless you attempt to mirror what they are doing, the R/R that works for them is not likely to also work as well for you or be as appropriate. And beyond that, what exactly do you do with the concept of a 2/1 or 3/1 R/R ratio. Do you decide that you are willing to risk only $60 because you don't have the stomach to risk $100. If you then accept a 2/1 R/R as the way to manage your trading does that mean that you take a profit at $120, assuming your $60 stop loss wasn't hit. Or, when you get long 18 ticks above a swing low and accept logic's dictate that your stop needs to be below that swing low, do you then set a target of 36 ticks because after all, that is where a 2/1 R/R would have it.

The problem with both these scenarios and why I reject the whole notion of a R/R ratio as a valid way to manage your trading is that it seems to ignore the posibility that you, by your entry decision, have the ability to define the risk that is appropriate for that specific trade. In the earlier post, as an example, I mentioned getting long 3 ticks above what I considered to be solid support and that in this instance the risk on the trade would be 4-5 ticks. 1 tick below support and allowing 1 tick for slippage. If I used a 2/1 R/R as my guide, do I exit at a 10 tick gain. Lets suppose I saw a potential move of 200 ticks, does that mean that I place a stop not 1 tick below the support that justified my entry but 100 ticks lower because that is what a 2/1 R/R suggests.

Price action, particularly with the NQ, is extremely dynamic with ever changing opportunities that are rarely consistent in the risk they present and the reward they offer. How does a having a fixed R/R ratio acknowledge this reality?

Attached are my two trades from this Friday. Both are similar in that the trades were made against resistance or support. The first trade had a 5 tick stop loss because that is what the price structure dictated and realized a 21 tick gain. In hind sight, a 4/1 ratio. The second trade also had a 5 tick stop loss because that is what price structure dictated,

and a 428 tick gain... 85/1 ratio. How does one fit these trades into the concept of R/R ratio?

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  #6 (permalink)
 bobwest 
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glennts View Post
Price action, particularly with the NQ, is extremely dynamic with ever changing opportunities that are rarely consistent in the risk they present and the reward they offer. How does a having a fixed R/R ratio acknowledge this reality?

I totally, absolutely agree.

I think a fixed R:R trading methodology:

(1) Can be completely appropriate for very short-term scalping, where you just want to grab something and get out.... Which will be profitable for some traders, but is not what everyone should be doing or can do successfully.

(2) Can be appropriate for taking trades within fairly well-defined range situations, because you don't want to push your luck that price will go beyond the currently identifiable range boundaries. This can work for many traders, and is essentially the correct kind of thinking for range trading, if you are going to do it: set a target and get out before price reverses on you. You expect that it will reverse soon in a range, and you will often be right.

(3) Is going to make you seriously regret your decision if you're looking to trade trends, because no one can know at the beginning how far a trend will go, and a set target can get you out at an arbitrary level that the market does not recognize. Why should price care what your risk and reward are? It will go where it goes.

This is a longtime debate, and it will not be settled any time soon, or probably ever. The thing is to know what your trading style is trying to take advantage of, and make your entry and exit decisions accordingly. A set R:R will work fine if the market is moving in fairly constrained ways, so you have to be in and out in a hurry, or if you are happy taking only small bites out of whatever the price action offers, and you get enough small bites that you don't care about not getting the big ones. If you are looking to get a good part of the bigger trends, it is not such a great idea.

So, I agree completely with @glennts, but others, including many successful traders, may say, "No, that's crazy." I'm not really saying which is right, I'm just saying that you should know what you're opting for by the choice of trading philosophy you make, and be sure it's the choice you want to make. It really is a choice, dependent on your trading methodology and your own preferences.

This is why the question is never going to be settled, by the way.

Bob.

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-- Cervantes, Don Quixote
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  #7 (permalink)
 WoodyFox 
Orlando, Florida
 
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These things are exactly why I only look at R/R over a period of time (contract to contract for me). All of my NQ trades over that period of time need to perform at an average 2.5/1 or above. If they don't, I will shelf the strategy. Recent examples: NQ 06-19 contract had an average 3.47/1, NQ 09-19 contract had an average 2.65/1. Each individual trade has a max Risk, but I leave the Reward open by simply trailing with a stop. I let the market tell me when the trade is over. If you were to pick a constant R/R for each individual trade, Volatility will usually kill your strategy. At least in my studies.

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