"That which doesn't kill me makes me stronger"
http://www.trade2win.com/boards/day...sk-reward-ratio-please-help-8.html#post937390
Quote:
Originally Posted by trade2finind
I'm a daytrader and trying to maintain good money mgt. Still, I am not sure on what my risk/reward ratio should be and am wondering how you guys have developed yours. My understand of a good ratio setup is, say, you should stop loss at -2 ticks and sell at +5 ticks from your buy price, and assuming that one's accuracy rate is near 50% and the $ amount of the +5 ticks is greater than the $ loss of the -2 ticks, then one should be set up profit in the long-run.
Can someone please correct if above is wrong and also tell how you reached your ratio setup? All advice is welcomed. Thanks.
What you are describing, in a nutshell, is expectancy. Which you want to be positive, and as large as possible ideally.
But your main problem with what you are going to achieve is this;
1) If you are 'scalping' your explicit and implicit transaction costs are going to be suicidally high as a proportion of your trade metrics, so the real numbers are gonna have to be far higher to compensate.
2) You are basically trading noise, and in the wider context of the markets that simply won't register in terms of smart analysis. So you're gonna find yourself caught on the wrong side of a trend far more often than is sensible, and you're gonna find the standard deviation of your returns, and with it, the confidence in your expectancy estimate is blown out the water.
As a result you're gonna p1ss your account away within a very short space of time, and the bad news is if you keep on this road there's nothing you can do about it.
So take a step back, give up the scalping and don't look at any chart shoter than say a 4h one until you have been making money 6 months say.
Genuine advice, well meaning, and sorry to be blunt it's just quicker
GJ
__________________
"That which doesn't kill me makes me stronger"
great post GJ
later
Andy
