Risk:Reward question

Mr Fox · Oct 23, 2013

I have noticed that I miss some trades, and examining this issue closely I have noticed that in the past I have not took these trades either, so I thought I would ask people on this thread their opinions.

Lets say you see a trade, and once appropriate due diligence is followed and all rules of your methodology are met the trade has a potential 1:1, and you risk 1% of your acc. on all trades.
Would you still take the trade if the risk:reward was 3pips risked for 3 pips gained, and still apply a 1% account allocation on such trades(assuming slippage, and spread are already taken into consideration).

I look forward to your response chaps.

Best
John

Shakone · Oct 23, 2013

No. I wouldn't risk 1% on 3 pips. I also wouldn't aim for only 3 pips.

Mr Fox · Oct 23, 2013

Shakone said:
No. I wouldn't risk 1% on 3 pips.

Can I ask why you wouldn't.

Best
John

Shakone · Oct 23, 2013

Lots of reasons. But I'll give one.

The market can gap a large number of pips even intraday. Many multiples of 3. Easily. That's months of work gone in an instant.

Mr Fox · Oct 23, 2013

Shakone said:
Lots of reasons. But I'll give one.

The market can gap a large number of pips even intraday. Many multiples of 3. Easily. That's months of work gone in an instant.

Thanks for your reply.

P.S. what would be your minimum pips you would feel safe for a 1:1.

Best
John

Shakone · Oct 23, 2013

I thought you had been taught a great system by a Bank of England trader?

Anyway, you're starting off on the wrong foot imo.

the trade has a potential 1:1

How do you know that? Are you so skilled in market understanding that you can know exactly how far the move can go? If you don't know how far it could go, what does that tell you that you should do, and what do you know?

Trader333 · Oct 23, 2013

Protection of trading capital through risk management is the number one requirement when trading. There is no set number of pips that is safe and a more important question for you is what is the market volatility for the timeframe you are trading. Position size should then be calculated relative to this and that applies even if you considered yourself able to predict the market direction.

Mr Fox · Oct 23, 2013

Shakone said:
I thought you had been taught a great system by a Bank of England trader?

Anyway, you're starting off on the wrong foot imo.

How do you know that? Are you so skilled in market understanding that you can know exactly how far the move can go? If you don't know how far it could go, what does that tell you that you should do, and what do you know?

I thought it would be easier to ask here, rather than e mail him.

Yes I must admit I am assuming in the question posted, the same way you assumed, you'd wipe out a months gains.

Now if you can answer my question I'd be much obliged.

Best
John.

Shakone · Oct 23, 2013

Mr Fox said:
I thought it would be easier to ask here, rather than e mail him.

Yes I must admit I am assuming in the question posted, the same way you assumed, you'd wipe out a months gains.

Now if you can answer my question I'd be much obliged.

Best
John.

I didn't assume I proposed that it 'can' happen.

There isn't an amount of pips that I'd feel happy with a 1:1 risk reward ratio, without other info that you haven't provided. The question doesn't make sense to me. Besides, I don't really believe in these sort of risk:reward ratios.

Mr Fox · Oct 23, 2013

Shakone said:
I didn't assume I proposed that it 'can' happen.

There isn't an amount of pips that I'd feel happy with a 1:1 risk reward ratio, without other info that you haven't provided. The question doesn't make sense to me. Besides, I don't really believe in these sort of risk:reward ratios.

My good man it is just a simple question I ask, and I can not fathom for the life of me why it doesn't make sense to you.

You state that you would not be happy risking 3 pips for a 3 pip gain, so let me ask you, how do you define how many pips you risk on a trade(afterall pips have to be risked, yes

) if don't really believe in these sort of risk:reward ratios.

I ask as I may learn something new(that is me assuming you know what your talking about).

Best
John

Shakone · Oct 23, 2013

I already answered your question.

Won't be answering any more today, you remind me too much of someone who was banned. :whistling

Mr Fox · Oct 23, 2013

Shakone said:
I already answered your question.

Won't be answering any more today, you remind me too much of someone who was banned. :whistling

You have not answered my question, but just decided to cast an aspersions, and run away, so I ask you AGAIN

You state that you would not be happy risking 3 pips for a 3 pip gain, so let me ask you, how do you define how many pips you risk on a trade(afterall pips have to be risked, yes ) if you don't really believe in these sort of risk:reward ratios as you state.

P.S. Why are you finding it hard to answer a question which you use daily to trade. I really don't understand.

I assure you I won't mock your approach however nonsensical it may be.

Best
John.

Shakone · Oct 23, 2013

There isn't an amount of pips that I'd feel happy with a 1:1 risk reward ratio, without other info that you haven't provided.

See. It has been answered.

Mr Fox · Oct 23, 2013

Shakone said:
See. It has been answered.

Now you're just being a pedantic idiot aren't you.

How about I ask "once your entry criteria has been met on a trade, how do you go about working out how many pips you will risk on a trade".

BeginnerJoe · Oct 23, 2013

Mr Fox said:
How about I ask "once your entry criteria has been met on a trade, how do you go about working out how many pips you will risk on a trade".

I'd risk infinite amount so long as my reason for entering the trade remains valid. Other times I'd stay in the trade out of spite of not letting the other side win. It would be incorrect to assume the market is a one way street.

Real trading is a game of skirmishes. Placing your bet casino style is gambling.

Mr Fox · Oct 23, 2013

BeginnerJoe said:
I'd risk infinite amount so long as my reason for entering the trade remains valid. Other times I'd stay in the trade out of spite of not letting the other side win. It would be incorrect to assume the market is a one way street.

Real trading is a game of skirmishes. Placing your bet casino style is gambling.

:clap:

With that approach we should re-name you Winner Joe from Beginner Joe.

OrderFlowDashPro · Oct 24, 2013

Risk reward is only part of the equation. The other part is your probability of a winning trade. The amount you can risk per trade is a function of your win ratio and your willingness to take a certain loss. I can say that the 1%-2% often quoted is going to be very sub optimal if you have an edge. This 2% figure was based on a 50/50 win/loss ratio assuming the trade didn't have an edge. Risking the same amount on every trade doesn't seem to make sense to me, either -- if some trades are better then others.

Mr Fox said:
I have noticed that I miss some trades, and examining this issue closely I have noticed that in the past I have not took these trades either, so I thought I would ask people on this thread their opinions.

Lets say you see a trade, and once appropriate due diligence is followed and all rules of your methodology are met the trade has a potential 1:1, and you risk 1% of your acc. on all trades.
Would you still take the trade if the risk:reward was 3pips risked for 3 pips gained, and still apply a 1% account allocation on such trades(assuming slippage, and spread are already taken into consideration).

I look forward to your response chaps.

Best
John

Solas0077 · Oct 24, 2013

Mr Fox said:
Would you still take the trade if the risk:reward was 3pips risked for 3 pips gained, and still apply a 1% account allocation on such trades(assuming slippage, and spread are already taken into consideration).

3 pips is noise or even worse than noise. What about 100 pips with 0.5% of capital allocated and 3:1 reward:risk? To me this sounds better. I tried what you are trying long time ago and lost everything after a news release when the market gaped against me. If you still want to try you will also learn the hard way. Nobody escapes at the end.

Mr Fox · Oct 24, 2013

OrderFlowDashPro said:
Risk reward is only part of the equation. The other part is your probability of a winning trade. The amount you can risk per trade is a function of your win ratio and your willingness to take a certain loss. I can say that the 1%-2% often quoted is going to be very sub optimal if you have an edge. This 2% figure was based on a 50/50 win/loss ratio assuming the trade didn't have an edge. Risking the same amount on every trade doesn't seem to make sense to me, either -- if some trades are better then others.

The 1-2% risked per trade is not sub-optimal, but more a subjective percentage that adheres to a persons risk appetite. I would not risk more than 1% on a trade, yet I would not argue the toss with someone who is prepared to risk 5%, nor would I say they were wrong.

Yes I was using broad strokes, and generalising, and that's why I stated if all your other parameters had been met(rules of your methodology/edge) but the core of the question remained the same which was would you risk 3 pips, to gain 3 pips.

Just as an aside, may I ask how you(personally) work out the other part of the equation(probability of your trades).

Best
John

Mr Fox · Oct 24, 2013

Solas0077 said:
3 pips is noise or even worse than noise. What about 100 pips with 0.5% of capital allocated and 3:1 reward:risk? To me this sounds better. I tried what you are trying long time ago and lost everything after a news release when the market gaped against me. If you still want to try you will also learn the hard way. Nobody escapes at the end.

Hi Solas,

Thanks for your reply, and no I would not like to learn the hard way, but rather listen to you, who has been there, done it, and learnt the hard way.

Best
John.

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