I don't average my R/R Ratios because I feel doing so gives a false picture. I break it down into categories in an effort to track my ability to execute properly. For example:
Setting aside 'wash trades' (where I earn enough to buy a small pizza
) for a moment, if I enter more toward the top of the channel, I look for a 1/1 ratio. In other words, Price may only have a small distance to travel before hitting the top of the trend channel. If I enter more toward the middle of the channel, a gain of 5% usually sends me packing. As a result, I usually see a 2.5 - 3 / 1 R/ R Ratio. When I enter nearer the bottom of the channel, I can grab 10%, 20%, even 30% or more on a trade. In this scenario (the home runs), I often see a ratio of 5, 10 or 15 to 1 for the R / R Ratio.As you can see, the profitability one cane anticipate on each trade varies greatly depending on the entry. 'Context' (discussed in a previous post) also plays a key role. A sudden change in context can see the whole paradigm thrown out the window, and as a result, I often walk away happy to simply have exited before the big crash.
I define wash trades (for equities) as anything plus or minus $100.00 USD.
- SPydertrader