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Nasdin, I see your risk / reward as basically money management, not a true calculation but simply a way to ensure you dont get hammered. I was wondering if there was some actual info. that u based this r/r on. Am i wrong in assuming it is just a scenario you use in order to better manage your trades ? ....do certain trades/entries have track records which have led you to place a r/r on them or do u simply use this formula for every trade? I hope im not being too confusing here...
Can you help answer these questions from other members on NexusFi?
Let me get very detailed on this.
Money management> % of account that you're risking per trade.
Let's say you drew a fibonacci, and you placed your trade, your stop loss is a few pips below the fibonacci level that you placed your trades on, let's say, 14 ticks/pips.
So 14ticks/pips is Equal to the % MM risk that you are risking
Since it is responsible to only risk 1-3% of your capital per trade
And let's say that you're only risking 2% of your capital
And that you have $100 000 in your capital
So from this value, you can work out on the position size that you need to open.
Hence, this covers Money management.
Now, about risk/reward ratio.
From the previous example of 14 ticks/pips as your stop loss.
We use the same fibonacci measurement that price has bounced off from to calculate where the price will go to and stop at.
So for e.g It bounced off the 61.8 level.
It will likely go to the 161.8.
So let's say that the 161.8 Fibonacci extension level is oh about 89 ticks/pips away.
Hence, your reward for this trade is 89 ticks/pips and your loss is 14ticks/pips
I have had my account open for 24 hours and have yet to pull the trigger on a trade...lol....I feel like chevy chase in European Vacation when hes going around the traffic circle! Wanted to short cl this morning but my averages were telling me something else, about to just look at dom and nothing else......
Wow, I didnt knew trading was a guessing and gambling game.
Let's go to the Casino!
Obviously, there are methods to find out where and when.
And that no one would not be so stupid to not have shifted their stop loss to break even or to have not have trailed it when it reaches 8 ticks/points/pips
Try starting out trading on a longer timeframe period.
Also use a smaller position sizing so as to maintain the same amount of risk/loss which is 2% or 1% of capital.
This way, even when you are trading on a longer timeframe period and would be experiencing larger stop loss values, you will still lose the same amount of money as you would have on shorter term and would actualy be earning more and having better chances of success as market is less vollatile in the longer term
This can help you get started to trading confidently.
Well - when you buy something, you buy it with the exception that someone more stupid than you will buy it from you at a higher price later on. This is what trading is. It is not a guessing game but it is a gamble. It is a gamble that there will be a greater fool to pay more later. There is a huge difference between guessing and gambling.
You may say that no-one is so stupid to not shift their stop loss.
Still - the people that quote the R:R + win %age ARE working on the premise that you would not manage the trade. It sounds smart but in fact it's just another one of those hurdles you need to get over on the way to actually learning how to trader.
R:R + win %age is just another retail trading truism you have to unlearn if you want to make money trading.
1.There is a huge difference between investing and gambling.
2.The fool that bought the price at a higher price was probably trading based on a higher timeframe and that it had hit an area which he deemed that the trend is up.
I still like to emphasize on R:R when trading, it helps to cover your next losses so you'll still be in profit in the long term, isn't that how we traders earn money? Making sure that our wins are more than our losses?
It's not a question of whether it can be done or not. What's important to consider, is if it's the optimal way to trade. I can sit down at a screen, or walk into a pit and study the price action for a brief period, begin trading; and make money. It wouldn't matter what I was trading, or if I even knew, what I was trading. The more time I spent trading it, the better I would become at picking up it's nuances and personality, and the easier it would become for me to scale my size, and make more money.
BUT, trading in this way has it's limits, and puts you at a great disadvantage to traders that are better equipped. The ones that criticize TA, or market analysis, or any other tool, are the ones that don't know how to use these tools properly, and don't want to take the time and effort to learn how to use them correctly. "Tools are only as good as the craftsmen using them", so I am going to assume, that one takes the time to learn how to use the tools properly.
Forget, about paper trading (SIM), or trading when you have another source of income you can use to pay your bills. It doesn't mean a thing. It's a whole different ballgame, when you actually trade for a living, and it's your sole source of income. If you want to get to that point, you are going to have to do what is necessary, to put yourself at an advantage, or at least on a level playing field.
You want to optimize your chance for success, by being as prepared as possible for what the market throws at you. You can either take a GPS with you on your journey, or you can just get in the car, and ask for directions along the way, and hope you get to your destination.
