Does it mean this ratio is only suitable for very short term trading?
Any guy making money using risk/reward ratio >1?
- Thread starter hermit_trader
- Start date
Does it mean this ratio is only suitable for very short term trading?
The successful traders that I know of trade this way. In my own trading, about 80-90% of my trades hit my profit objective; the other 10-20% are losers because they hit my stop.
In every trade, my stop is about equal to 150% of my profit objective. For example, if my goal profit is $2, then my stops are usually set about $2-3 away from my entry.
The whole key to achieving 80-90% win rates is knowing where to take profits and where to set stops. There are good places, and not so good places.
I much rather prefer to trade this way. In fact, I think that it does makes the psychology, dicipline, and overall attitude of trading much much easier. I know that the vast majority of my trades are going to win, and it gives me much more confidence. In fact, when I check the status of my trades the next day, I'm usually surprised to see a loser, and even then my usual reaction is, "well, I'll get em next time."
To me it's much less stressful to trade this way. I just don't have the diciplince and stomach to see myself having losing trades day after day. Just depends on your personality.
It's a very very very very common misconception that your winners must be much larger than your losers in order to have positive expectancy. I don't know why most people perpetuate this misconception. Of course, most if most traders averge a 50% hit rate, then this strategy is doomed to fail.
Now, I'm not saying that this strategy can apply to everyone, but if your averaging 80-90% winners, taking a 1-2x loser is not gonna hurt you. Now, the wrong approach is setting your stops about 3-4-5 times larger than your winners. You'd better be winning >95% of your trades to make it then.
But, it can be done, and for me, it's much easier psychologically to have almost all of my trades profitable.
eugene
In every trade, my stop is about equal to 150% of my profit objective. For example, if my goal profit is $2, then my stops are usually set about $2-3 away from my entry.
The whole key to achieving 80-90% win rates is knowing where to take profits and where to set stops. There are good places, and not so good places.
I much rather prefer to trade this way. In fact, I think that it does makes the psychology, dicipline, and overall attitude of trading much much easier. I know that the vast majority of my trades are going to win, and it gives me much more confidence. In fact, when I check the status of my trades the next day, I'm usually surprised to see a loser, and even then my usual reaction is, "well, I'll get em next time."
To me it's much less stressful to trade this way. I just don't have the diciplince and stomach to see myself having losing trades day after day. Just depends on your personality.
It's a very very very very common misconception that your winners must be much larger than your losers in order to have positive expectancy. I don't know why most people perpetuate this misconception. Of course, most if most traders averge a 50% hit rate, then this strategy is doomed to fail.
Now, I'm not saying that this strategy can apply to everyone, but if your averaging 80-90% winners, taking a 1-2x loser is not gonna hurt you. Now, the wrong approach is setting your stops about 3-4-5 times larger than your winners. You'd better be winning >95% of your trades to make it then.
But, it can be done, and for me, it's much easier psychologically to have almost all of my trades profitable.
eugene
yep, that's right
Now I don't know you, but everyday I thank God for this EOD system.
I ran this test on a list of 218 Nazstocks (those having a 60 ma of the daily volume > 1000000 on Nov 21 2002).
1000 bars (about 4 years)
The system is long only, and slippage usually is at minimum cause the system buys on weakness and sells on strength.
Now guys, half of you won't believe these figures , and that's ok.
For the other half ... DON'T EVEN THINK ABOUT IT !
Not to be rude guys but took me 3 years to develope it, 6months of paper trading(watching the system making money without me...), 6 months to trade it properly(you always think you are better than your f@#$% sys. you moron), and finally 2 years of real money
Commissions are calculated (Interactive Brokers fees)
Max number of Stocks * trade = 2000 ( I want to be sure to go in and out quickly of position with minimum slippage and I want to keep my blood pressure low).
%of equity per trade 20
Starting Capital $25,000.00
Ending Capital $532,060.88
Net Profit $507,060.84
Net Profit % 2,028.24%
Exposure % 6.34%
Risk Adj Return 31,971.64%
All Trades 571
Avg Profit/Loss $888.02
Avg Profit/Lo % 3.89%
Avg Bars Held 1.13
Winning Trades 514 (90.02%)
Gross Profit $648,898.06
Avg Profit $1,262.45
Avg Profit % 5.46%
Avg Bars Held 1.03
Max Consecu 30
Losing Trades 57 (9.98%)
Gross Loss $-141,837.34
Avg Loss $-2,488.37
Avg Loss % -10.20%
Avg Bars Held 2.00
Max Consecu 3
Max DDown% -9.59%
Max DDown$ $-26,178.47
Max DD Date 4/14/2000
Recovery Factor 19.37
Profit Factor 4.57
Payoff Ratio 0.53
Standard Error $51,950.80
Risk Rew Ratio 3.08
ps. Pardon my English
I ran this test on a list of 218 Nazstocks (those having a 60 ma of the daily volume > 1000000 on Nov 21 2002).
1000 bars (about 4 years)
The system is long only, and slippage usually is at minimum cause the system buys on weakness and sells on strength.
Now guys, half of you won't believe these figures , and that's ok.
For the other half ... DON'T EVEN THINK ABOUT IT !
Not to be rude guys but took me 3 years to develope it, 6months of paper trading(watching the system making money without me...), 6 months to trade it properly(you always think you are better than your f@#$% sys. you moron), and finally 2 years of real money
Commissions are calculated (Interactive Brokers fees)
Max number of Stocks * trade = 2000 ( I want to be sure to go in and out quickly of position with minimum slippage and I want to keep my blood pressure low).
%of equity per trade 20
Starting Capital $25,000.00
Ending Capital $532,060.88
Net Profit $507,060.84
Net Profit % 2,028.24%
Exposure % 6.34%
Risk Adj Return 31,971.64%
All Trades 571
Avg Profit/Loss $888.02
Avg Profit/Lo % 3.89%
Avg Bars Held 1.13
Winning Trades 514 (90.02%)
Gross Profit $648,898.06
Avg Profit $1,262.45
Avg Profit % 5.46%
Avg Bars Held 1.03
Max Consecu 30
Losing Trades 57 (9.98%)
Gross Loss $-141,837.34
Avg Loss $-2,488.37
Avg Loss % -10.20%
Avg Bars Held 2.00
Max Consecu 3
Max DDown% -9.59%
Max DDown$ $-26,178.47
Max DD Date 4/14/2000
Recovery Factor 19.37
Profit Factor 4.57
Payoff Ratio 0.53
Standard Error $51,950.80
Risk Rew Ratio 3.08
ps. Pardon my English
