dropping a bomb

[PointOne]

What about the risk of being in cash on the sidelines when the markets are moving? Does the risk-free rate even begin to cover this?

How about being in a low return trade when there are better opportunities going on?

What about all the great trades you miss because they did not pass your arbitrary R/R profile?

The only rational approach is to look at what the market is offering and compare your returns on that basis. Potential reward is infinite. At certain points risk is effectively nil. OK, so be reasonable: what % of the daily range is possible at your skill level? Can you prevent losses ever getting bigger than 3 ticks? Can you get to a point where even your mistakes make you money?

The danger with R/R type thinking is that traders confuse their responsibilities with those of the market.

These are only my opinions.

 

[sporky]

Quote from PointOne:



The danger with R/R type thinking is that traders confuse their responsibilities with those of the market.

i'd like to hear more about that

or is this another hit and run post

 

[PointOne]

Quote from sporky:

i'd like to hear more about that

or is this another hit and run post

The responsibility of the trader, imho, is to determine when the market is continuing and when it is changing. This repeated monitoring allows the trader to stay with the winners and get out of the losers, ideally before they become losers. (Why let your stop get hit?)

The market tells the trader what to do. Any R/R stuff is an artificial construct relating more to the trader's P&L than what the market is actually offering.

When a trader enters a position he has no idea how long the move will last or how far it will go. No one knows. (Of course, given context and experience he may have an idea, but this is nothing more than a learned bias.)

When the market changes (reverses) one tick from the R/R-trader's reward target limit order, what does he do? He hopes to be hit but watches as price declines to his entry or stop or breaks his own rules and covers before then. Or if price does get to his target you can be sure it will continue well beyond - profits left on the table. Either way it's a dumb approach to the markets.