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Trading ES with (1:1)...Risk : Reward


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Trading ES with (1:1)...Risk : Reward

  #1 (permalink)
hatorihanzo
providence, RI
 
Posts: 5 since Jul 2010
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Is this even possible? seems like u have to risk 2pts to make just 1 because almost always, the mkt will pull back to get your entires, even MORE SO if u enter on stops.

With 2 point risk, u can stay in a position longer, but if ur Wrong, its a constant battle of moving forward 1 step and backwards 2, thus, a losing game over time.

Seems like 2:2 ratio is better, but then the mkt rarely gives u 2points, so if u take one pt out, u are still risking 2 to make 1.

How are you guys trading 1:1 without getting stopped out immediately? 1:1 for me is almost like donating money.

thanks for any input.

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  #3 (permalink)
hatorihanzo
providence, RI
 
Posts: 5 since Jul 2010
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Thanks Received: 29


i think risking 1 to make 2 (1:2) theoretically is good BUT, i feel there is a major Flaw in this mentality.

As a test, i made 20 trades risking 1:2 and ONLY ONE out of 20 hit the 2pt profit target. I mean, that is a 95% failure rate, and the mkt only goes UP or DN...50/50, right?

If its no better than a coin flip, how can you be wrong 19/20 times?

Is there something im missing here? maybe a larger trade sample size? where by the time i have a 100 losers and 10 winners, my account is blown?

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  #4 (permalink)
 
Bama Bob's Avatar
 Bama Bob 
Birmingham, Alabama
 
Experience: Intermediate
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The point that is missing is that you MUST have and edge for the trade you are taking other wise you are just gambling. NOTE- if you do not have a high probability setup for every trade you take -- you are a gambler. You must find your edge.

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  #5 (permalink)
hatorihanzo
providence, RI
 
Posts: 5 since Jul 2010
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Bama Bob View Post
The point that is missing is that you MUST have and edge for the trade you are taking other wise you are just gambling. NOTE- if you do not have a high probability setup for every trade you take -- you are a gambler. You must find your edge.


how do u possibly gain an edge against institutions, big money, and deep pockets, etc.? our petty 6 figure accounts are no match with their zillions of dollars.

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  #6 (permalink)
 kylinbyl 
Rochester
 
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I think an example of a 1 point edge would be this. Picture a 3 bar reversal pattern, which is a HH, HL then HH,HL, followed by LH,LL. If bar 4 takes out the low, some traders get in immediately. Others are conservative and wait for a retrace back towards that highest high. If it truely is a reversal getting in 1 point from the top with a stop above that high, should give you a 1:1 higher than normal probability. To me if it goes back below that low 1:3, 1:4.

Billy

PS Holding for that 1:3 is what I need to work on...especially on the ES. You are correct on the up/down 1 then 2 point movement.

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  #7 (permalink)
 
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 Big Mike 
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hatorihanzo View Post
As a test, i made 20 trades risking 1:2 and ONLY ONE out of 20 hit the 2pt profit target. I mean, that is a 95% failure rate, and the mkt only goes UP or DN...50/50, right?

I don't think this is a good test. If the results were accurate, you would enter the opposite direction and have a 95% winning strategy with a 2:1 risk/reward, still very profitable.

Read this thread for some extra comments:


Mike

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  #8 (permalink)
 
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 LukeGeniol 
Italy (IT) Italy
 
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hatorihanzo View Post
i think risking 1 to make 2 (1:2) theoretically is good BUT, i feel there is a major Flaw in this mentality.

As a test, i made 20 trades risking 1:2 and ONLY ONE out of 20 hit the 2pt profit target. I mean, that is a 95% failure rate, and the mkt only goes UP or DN...50/50, right?

If its no better than a coin flip, how can you be wrong 19/20 times?

Is there something im missing here? maybe a larger trade sample size? where by the time i have a 100 losers and 10 winners, my account is blown?

If u talk about 1:1 and consider the market is random, without commission, on a long series, 20 are statistical insignificant, u have the 50% of probabilities to be right. Said that if u risk/reward is 1:2 the probailities are reduced by another 50%, so u can be right 25% of times. Said that I think market is not random, otherwise u can't develop an edge and on the long run trading would be a losing game, cos there are commission and tax etc.
Then if u go in the market with a random strategy, considering u haven't the capital to 'flip the coin' many time to reach 50% to be right, in a short term u have the same probabilities to win or loose, but then anyway u will loose due to the commission and tax etc.

Luke.

Take your Pips, go out and Live.
Luke.
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  #9 (permalink)
 
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 LukeGeniol 
Italy (IT) Italy
 
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Big Mike View Post
I don't think this is a good test. If the results were accurate, you would enter the opposite direction and have a 95% winning strategy with a 2:1 risk/reward, still very profitable.............

Mike

This is not the case cos the test is random so if u go in opposite direction is random too and the probabilities to be profitable are always the same.

Luke.

Take your Pips, go out and Live.
Luke.
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  #10 (permalink)
 cw30000 
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hatorihanzo View Post
how do u possibly gain an edge against institutions, big money, and deep pockets, etc.? our petty 6 figure accounts are no match with their zillions of dollars.


Who said we need to go against them? With their size, they cannot go in and out we small traders do. They have to buy/sell in a incremental basis. That's it, once they started their buying/selling, they cannot stop until they are filled with their order as the best possible price. We, as a small trader, we will buy/sell after they started their buying/sell. This usually present a few opportunities and this is our edge.

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Last Updated on August 29, 2010


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