Opinions on Trading with Small Reward vs Risk Ratios

[SimpleMeLike]

Hello All,

I intraday day trade on 3 minute chart.

I have a trading idea/strategy I am writing up to exit profits at 10-15 ticks (based on market volatile or price structure at the time) and my average stop loss distance is about 15-30 ticks (based on market volatile or price structure at the time). This goes against the standard trading I hear/read " Always Keep rewards greater than risk".

I have started back testing the strategy, however, I often wonder if taking profits smaller than risk is worthwhile or nonsense. I guess the back test expectancy results will prove if the idea is profitable or not.

Questions:

1. From your experience , what are some statistics to consider when back testing trading idea with small R:R less than 1? I believe numbers of consecutive losses is one to track.

2. Does risk vs reward matter when expectancy over a sample of trades is most important?

Please give me your feed back on trading with small Risk to Reward ratio (less than 1).

Thank you in advance for your comments.

 

[padutrader]

I often wonder if taking profits smaller than risk is worthwhile or nonsense.

if probability is high it would be nonsense to go for a reward more than 1

 

[tommcginnis]

1) Maximum Adverse Excursion is somewhat more important than the very-interrelated Number Of Consecutive Losses: MAE puts a dollar figure on it.

Similarly,
2) Expectancy is where the forward-looking reward|risk meets the impact-on-the-account-balance reality.

Your thread title mentions *small* reward|risk -- I did this for a long time -- in tick-scalping and in selling option spreads -- 25¢|$1.00, but sometimes days or weeks without a loss. It will play with your brain: ALWAYS have a plan (including pre-programmed TP/SL bracket trades in place).

 

[SimpleMeLike]

if probability is high it would be nonsense to go for a reward more than 1

Hello padutrader,

Thanks for the response.

Why do you say it will be nonsense?

 

[SimpleMeLike]

ALWAYS have a plan (including pre-programmed TP/SL bracket trades in place).

Hello tommcginnis,

Thanks for your response.

I agree on this part.

 

[padutrader]

Why do you say it will be nonsense?

you will not get it.
high probability, and high reward is a mirage.
that is why all fraudsters promise it..

 

[SimpleMeLike]

you will not get it.
high probability, and high reward is a mirage.
that is why all fraudsters promise it..

Thanks for response padutrader,

 

[IAlwaysWin]

Why leave your nuts on the table for the big boy to smash?

I would stop using a stop loss and start making the opposite direction signal your exit and re-entry into the market. If your strategy is any good, you'll find that you'll break even at least 60% of the time if things go against you. If you can't achieve that then your method isn't automation worthy. If it's not automation worthy, it's worthless..

 

[SimpleMeLike]

Why leave your nuts on the table for the big boy to smash?

I would stop using a stop loss and start making the opposite direction signal your exit and re-entry into the market. If your strategy is any good, you'll find that you'll break even at least 60% of the time if things go against you. If you can't achieve that then your method isn't automation worthy. If it's not automation worthy, it's worthless..

Thanks for the response IAlwaysWin,

For as long as I live, whenever I place a trade, I always and forever enter a stop loss on the DOM. I love trading, but a stop always goes with my trades. The big boys can smash my nuts all they want, but a stop loss will always be entered on that damn DOM.

 

[IAlwaysWin]

Thanks for the response IAlwaysWin,

For as long as I live, whenever I place a trade, I always and forever enter a stop loss on the DOM.

Just saying, you should look into that. Numbers don't lie but I do trade Forex, somewhat of a different beast anyhow.