Myself, probably around 25% to 70-80%
What do YOU consider acceptable Risk vs Return?
- Thread starter achilles28
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1) For my very short term trades, I often get a risk:reward of 1.5:1 (i.e. earn a smaller return than my risk)... this is because the short-term stuff is high probability (I only lose 25% of the time on the 'quick or dead' stuff)... people like Marty Schwartz and Larry Williams would fall into this category...
2) For the longer-term stuff, a risk:reward of 1:3 (much greater return than risk) sounds about right, reflective of the lower probability of a hit (a 60%'ish chance of a loss)... longer-term traders such as David Ryan and Victor Sperandeo would fall into this category...
The 'acceptable' risk vs return totally depends on the probability situation... there is therefore no correct answer... either extreme can be made to work as long as you have got the probability of losing correctly assessed...
A quick analysis indicates a lower trade expectancy in case 1) relative to case 2), but this hides the much higher opportunity factor in the former case... case 1) for me is therefore a more profitable approach...
2) For the longer-term stuff, a risk:reward of 1:3 (much greater return than risk) sounds about right, reflective of the lower probability of a hit (a 60%'ish chance of a loss)... longer-term traders such as David Ryan and Victor Sperandeo would fall into this category...
The 'acceptable' risk vs return totally depends on the probability situation... there is therefore no correct answer... either extreme can be made to work as long as you have got the probability of losing correctly assessed...
A quick analysis indicates a lower trade expectancy in case 1) relative to case 2), but this hides the much higher opportunity factor in the former case... case 1) for me is therefore a more profitable approach...
it depends on the setup
many of my setups are vigorously backtested, so i have no problem risking (for example) 21 pts to get a 78% chance of winning 14 pts
now, that is an unacceptable risk/reward ratio by some reckonings, but ... do the math
risk/reward only makes sense if computed in regards to the probability of that positive outcome
many of my setups are vigorously backtested, so i have no problem risking (for example) 21 pts to get a 78% chance of winning 14 pts
now, that is an unacceptable risk/reward ratio by some reckonings, but ... do the math
risk/reward only makes sense if computed in regards to the probability of that positive outcome
Excellent points, whitster... I totally agree with you...
While this subject keeps coming up, it just keeps reminding me of the extent to which traders play in the market without everything they need to know.
This question of risk and reward appears to be debated upon, in effect, how inaccurate you can afford to be (acceptance of what proportion of losers) and still play with an alleged net upside return.
This question of risk and reward appears to be debated upon, in effect, how inaccurate you can afford to be (acceptance of what proportion of losers) and still play with an alleged net upside return.
Don't forget to figure out the risk vs return profile of "Buy And Hold For The Long Term", which is the appropriate benchmark for comparison (according to Efficient Market Hypothesis believers).
When you run the numbers it's actually rather startling. At least it was to me.
When you run the numbers it's actually rather startling. At least it was to me.