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Does Reward HAVE to be greater than Risk


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Does Reward HAVE to be greater than Risk

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  #1 (permalink)
Houston
 
 
Posts: 161 since Dec 2016
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Hello all,

I love the forum.

I am an intraday price action discretionary futures trader.

From your experience, To be a consistent future day trading does Rewards always have to be greater than Risk per trade? Often I read or hear trading content where it states always keep R:R above 1 or 2 per trade.

I am asking because I am currently testing and reviewing a strategy where I can get 10 ticks frequently, but my stop loss will vary (15-30 ticks) depending on market structure at the moment.

Thank you and I appreciate your time and effort.

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  #3 (permalink)
Legendary Market Wizard
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goodoboy View Post
Hello all,

I love the forum.

I am an intraday price action discretionary futures trader.

From your experience, To be a consistent future day trading does Rewards always have to be greater than Risk per trade? Often I read or hear trading content where it states always keep R:R above 1 or 2 per trade.

I am asking because I am currently testing and reviewing a strategy where I can get 10 ticks frequently, but my stop loss will vary (15-30 ticks) depending on market structure at the moment.

Thank you and I appreciate your time and effort.

I don't trade like you at all (I am algo trading), but I don't think the rewards must be above the risk in order to be successful.

What is really important is the expectancy, not the risk/reward.

Of course, there are psychological reasons why you might want risk/reward a certain way, but the key is if the math works out.

I have algo strats that win over 90% of time. but reward/risk is awful (little rewards, big risk). Overall strategy is profitable (positive expectancy), so I trade it.

I have algo strats that win over 20% of time. but reward/risk is great (big rewards, little risk). Overall strategy is profitable (positive expectancy), so I trade it.

Expectancy is the key.

I can't some helpful links here, since it might be considered self promotion...

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  #4 (permalink)
Market Wizard
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goodoboy View Post
Hello all,

I love the forum.

I am an intraday price action discretionary futures trader.

From your experience, To be a consistent future day trading does Rewards always have to be greater than Risk per trade? Often I read or hear trading content where it states always keep R:R above 1 or 2 per trade.

I am asking because I am currently testing and reviewing a strategy where I can get 10 ticks frequently, but my stop loss will vary (15-30 ticks) depending on market structure at the moment.

Thank you and I appreciate your time and effort.

I trade ES/RTY/CL/GC/6E and almost all my trades have a negative R:R , the markets whip around so much that you need to room. I am by no means the best or richest trader but I do trade full time so I think it works at least for me.

and the more and more I trade I realize that setting a fixed TP isn't always the best way to trade.

my 0.02

-P

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  #5 (permalink)
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Kevindog really put it in nice way.

As a manual trader though, high risk ratio will require you to be right more times out of set number of trades.

See it like this, 2:1 risk:reward will require you to be right at least 30% times more as you were when you were doing okay with 1:2 risk:reward. This is just roughly I'm saying, so you need to really define what you mean by "frequently", answer to your question will be there. There will be more astute math guys replying here sooner or later to get you right number, but this is just to give you picture of it.


By the way, there is nothing wrong with it, its just that manual traders are rarely right enough times to achieve it successful. So as a thumb rule I wouldn't say lower than 1:1 would be a good idea unless that "frequently" is in good frequency.

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  #6 (permalink)
Houston
 
 
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kevinkdog View Post
I don't trade like you at all (I am algo trading), but I don't think the rewards must be above the risk in order to be successful.

What is really important is the expectancy, not the risk/reward.

Of course, there are psychological reasons why you might want risk/reward a certain way, but the key is if the math works out.

I have algo strats that win over 90% of time. but reward/risk is awful (little rewards, big risk). Overall strategy is profitable (positive expectancy), so I trade it.

I have algo strats that win over 20% of time. but reward/risk is great (big rewards, little risk). Overall strategy is profitable (positive expectancy), so I trade it.

Expectancy is the key.

I can't some helpful links here, since it might be considered self promotion...

Thank you so much kevinkdog,

I appreciate your response.

So its all about the positive expectancy over a series of trades. That is a good way and logical way to think of it.

I am happy to know you have algo strats that win over 90% of time, because I am currently testing a strategy similar with little rewards, and big risk, however, the strategy kinda fits my comfort area and time commitment versus another strat that requires a bit more trade management and time.

Another question please.

How many number trades would you recommend to confirm positive expectancy of strategy? I am currently thinking 1 year worth or 300 trades because the strategy seeks a trade per day. How many did you use for your 90% win strategy?

Thank you.

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  #7 (permalink)
Houston
 
 
Posts: 161 since Dec 2016
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MiniP View Post
I trade ES/RTY/CL/GC/6E and almost all my trades have a negative R:R , the markets whip around so much that you need to room. I am by no means the best or richest trader but I do trade full time so I think it works at least for me.

and the more and more I trade I realize that setting a fixed TP isn't always the best way to trade.

my 0.02

-P

Thank you MiniP for the response.

I too trade ES and CL daily and I certainly agree with you regarding the wavy price action challenge on a day-to-day basis. Having a large logical (based on price action at the time) stop loss helps me mentally and strategically because I do not like getting false stop outs due to bad stop location.

Regarding fixed profit target. Yes, setting a fixed profit target versus profit target based on logical support and resistance area, to me, is an ongoing challenge. I kinda favors a personal comfortable decision or technical decision. I do not have an answer for it now. I tend to seek both ways.

Thanks again.

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  #8 (permalink)
Houston
 
 
Posts: 161 since Dec 2016
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LastDino View Post
Kevindog really put it in nice way.

As a manual trader though, high risk ratio will require you to be right more times out of set number of trades.

See it like this, 2:1 risk:reward will require you to be right at least 30% times more as you were when you were doing okay with 1:2 risk:reward. This is just roughly I'm saying, so you need to really define what you mean by "frequently", answer to your question will be there. There will be more astute math guys replying here sooner or later to get you right number, but this is just to give you picture of it.


By the way, there is nothing wrong with it, its just that manual traders are rarely right enough times to achieve it successful. So as a thumb rule I wouldn't say lower than 1:1 would be a good idea unless that "frequently" is in good frequency.

Thank you so much LastDino for the response.

Yes, I agree with the manual effort part.

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  #9 (permalink)
Legendary Market Wizard
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goodoboy View Post
Thank you so much kevinkdog,

I appreciate your response.

So its all about the positive expectancy over a series of trades. That is a good way and logical way to think of it.

I am happy to know you have algo strats that win over 90% of time, because I am currently testing a strategy similar with little rewards, and big risk, however, the strategy kinda fits my comfort area and time commitment versus another strat that requires a bit more trade management and time.

Another question please.

How many number trades would you recommend to confirm positive expectancy of strategy? I am currently thinking 1 year worth or 300 trades because the strategy seeks a trade per day. How many did you use for your 90% win strategy?

Thank you.

I don't use # of trades as much as I do time.

The number of trades depends on the number of optimized variables I might have.

Time is usually 5-10 years of history. I want to see that the strategy performed well in many different market situations.

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  #10 (permalink)
Houston
 
 
Posts: 161 since Dec 2016
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kevinkdog View Post
I don't use # of trades as much as I do time.

The number of trades depends on the number of optimized variables I might have.

Time is usually 5-10 years of history. I want to see that the strategy performed well in many different market situations.

Thank you kevinkdog very much,

5-10 years of backtesting can sure prove a strategy reliable. I am not sure I can manual backtest intraday trades for 5 -10 years. That would take alot of time.

For sure, I understand your reasoning for testing different market situations. Good idea.

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