3 to 1 Ratio

D

DraXon

Can someone test this out for me on ES or NQ?

If yesterday's close is greater than yesterday's open then go long on today's opening.

If yesterday's close is less than yesterday's open then go short on today's opening.

(9:00 AM - 4:00 PM EST)

Set stop at 3 points.

Set target at 9 points.

Thanks.
 
Quote from DraXon:

Can someone test this out for me on ES or NQ?

If yesterday's close is greater than yesterday's open then go long on today's opening.

If yesterday's close is less than yesterday's open then go short on today's opening.

(9:00 AM - 4:00 PM EST)

Set stop at 3 points.

Set target at 9 points.

Thanks.
More...

Stops are too tight for this method and you would get too many losses, targets are OK. That's from my experience. I use targets of 9 pts in some of my systems, stops of 6 pts (in ES).
 
It's really the risk to reward ratio that I'm mainly interested in. I just thought that the method mentioned above might be a slight improvement to a random entry. I don't know for sure though. Can someone with the resources test out the random entries as well?
 
Quote from DraXon:

It's really the risk to reward ratio that I'm mainly interested in.
More...


If it's the risk/reward ratio you're mainly interested in, then
you're fine. Most short term traders that I know strive for a
3-1 ratio. Remember, if you can average a 3-1 ratio, you only need to be right 4 out of every 12 trades and you will break-
even.

Also, if you want to test these ideas out for yourself, I've
heard www.wealth-lab.com is a useful site.

Hope this helps...
 
Quote from DraXon:

It's really the risk to reward ratio that I'm mainly interested in. I just thought that the method mentioned above might be a slight improvement to a random entry. I don't know for sure though. Can someone with the resources test out the random entries as well?
More...

If you are stopped out too often, what kind of rewards are you talking about? The ratio is one thing, the frequency is another, but you cannot treat them completely separately. Your ratio is great, but if the frequency of your winners is too low compared to your losers, you will lose in the long run. These things cannot be treated separately, they occur on an equal footing in the formula for the system expectancy which you should know if you think seriously about designing a sound mechanical trading system. You should backtest your systems for various values of R. R=1.5 my not be that bad if it results in a good ratio of winners to losers so that the system is profitable.
 
Agree wally.

Everyone seems to make a really bad assumption
in regards to frequency.

What if I took trades with a 100:1 risk ratio? :D
That must be better than 3:1 right??

I would get stopped out all the time, because
the frequency of the "100" occuring would be
close enough to 0 that you would never make
a profit.

peace

axeman


Quote from wally_:



If you are stopped out too often, what kind of rewards are you talking about? The ratio is one thing, the frequency is another, but you cannot treat them completely separately. Your ratio is great, but if the frequency of your winners is too low compared to your losers, you will lose in the long run. These things cannot be treated separately, they occur on an equal footing in the formula for the system expectancy which you should know if you think seriously about designing a sound mechanical trading system. You should backtest your systems for various values of R. R=1.5 my not be that bad if it results in a good ratio of winners to losers so that the system is profitable.
More...
 
Quote from axeman:

Agree wally.

Everyone seems to make a really bad assumption
in regards to frequency.

What if I took trades with a 100:1 risk ratio? :D
That must be better than 3:1 right??

I would get stopped out all the time, because
the frequency of the "100" occuring would be
close enough to 0 that you would never make
a profit.

peace

axeman
More...
then take it one step further, how many of the trades you get stopped out at 1 would you have gotten stopped out at 3 or 6 or whatever?
 
You must log in or register to reply here.
Back
Top