Risk/Reward Ratio

[Sekiyo]

Are you sure? Have you ever held 1 ES overnight?

Never done that.

 

[mervyn]

Never done that.

try, you will be surprised, pleasantly.

 

[Overnight]

...
Since he does trade without Stop loss
He needs 220K+ for his account size to buffer the DD...

In order for him to get a margin call with 220K cash in his account holding 1 ES, it would have to drop to ~300. The SP is not dropping to 300. And even if it did, it would take like 3 weeks because of the 20% per day breaker limit. So he doesn't need 220K to buffer the DD.

Since you say you've never held overnight, here's some simple maths for you to clear it up...

1ES buffer = margin + cash + position.

Margin=12,320
Cash=50K (an example amount)
Position = 4400 = 0 (flat)

ES drops 100 points to 4300.

Plug in the formula.

-12,320+50,000+(-)5,000 = 32,680

32K buffer

Likewise, works the other way

ES rises to 4500.

-12,320+50,000+5,000 = 42,680

 

[comagnum]

Risk-to-reward is everything, when executed well you become the casino. Most traders have no clue on how important this is & few will never get past their obsession with win rate.

 

[earth_imperator]

How do you calculate the risk/reward of an options trade?
For example for this hypothetical LongCall trade:
UnderlyingSpot=100 Strike=100 DTE=45 IV=30 r=0% q=%0 Premium=4.20
(r=risk-free-rate, q=dividend-rate; here both 0%)
The risk is of course 4.20, but how to calc the reward part?

 

[Sprout]

Risk-to-reward is everything, when executed well you become the casino. Most traders have no clue on how important this is & few will never get past their obsession with win rate.

There was a good episode (252) on Chat with Traders with Yvan Byeajee. He discusses the "Intolerance of Uncertainty" and how the pursuit for high win rate systems is no bueno yet preoccupies many a beginner and struggling trader alike.

The math works better for high R:R and counterintuitively provides more profitability despite low winrates.

 

[murray t turtle]

Or could be the opposite, lose 2 and win 1.

Each trade is independent coin flip, normal distribution is 50/50, the fewer times you toss a coin, the more likely they will be skewed to either side, like TPO, Volume Profile strategy.

But of course, other factors such as news, earnings, etc come into play. Asset pricings are not a normal distribution but log normal, no negatives. That's why longs have better win rate than shorts.

If next recession ever come, buy the dip, until then...

%%
Exactly right mostly.
But a risk reward coin toss , silver, gold, copper or regular Fed reserve coin toss is much better than a coin flip , can be> 70.7%
Overnite holds, for sure on some. Some not so much

 

[comagnum]

The math works better for high R:R and counterintuitively provides more profitability despite low winrates.

human nature compels us to maximize the chance of a gain instead of maximizing the size of gains -this which works against us big time.

This quote came from some famous trader, not sure who it was. The longer I trade the more sense it makes, here it is:

"You can have a 15-25% win rate at 8R & get wildly rich, but very few will ever do it because it is not comfortable. What feels the best as a discretionary trader is never going to get you the big money, it's about managing discomfort."

 

[mervyn]

human nature does not operate to maximize the size of a gain, it wants to maximize the chance of any gain, not matter how small. This works against us big time with trading or investing.

This quote came from some famous trader, not sure who it was. The longer I trade the more sense it makes, here it is:

"You can have a 15-25% win rate at 8R & get wildly rich, but very few will ever do it because it is not comfortable. What feels the best as a discretionary trader is never going to get you the big money, it's about managing discomfort."

In not so many words, go with the trend.

But, perspectives are different.

 

[murray t turtle]

In not so many words, go with the trend.

But, perspectives are different.

%%
Exactly, seldom pick some for diVdend/
trend may go past year end/
Oil stocks sector\ may downbend more by that tag end\
Even better with trend; dont overspend. I used Rhyme zone to help with the unknown.