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What is the best Risk Reward Ratio? But is that the right question?


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What is the best Risk Reward Ratio? But is that the right question?

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  #41 (permalink)
DaretoDo
Virginia Beach, Virginia
 
Posts: 6 since Dec 2020
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Thanks for posting, it's an interesting topic. A few thoughts I have...

- No stop (or very large stop) strategies are brutal psychologically. I prefer my job to be low-stress. I was a "gunslinger" back in the day; ran no stops and whatnot and the bad days are....bad.

- I believe there is a place for no stop strategies but I would argue that options are a better way to use them. Cheap OTM long calls/puts can do a lot of work for you with exact risk controls. Obviously you would have to alter your trade frequency, slippage, etc. but SPY weeklies are a viable vehicle for intraday trading.

- If you're having a big problem getting stopped out than you need to work on your entries. Order book and footprint/heatmap tools are excellent for finding precise entries and possible stop run locations.

- Listen to most professional traders who have been consistent over long stretches and you'll hear a common refrain; TAKE LOSSES EARLY. You can back test all day long with incredible results but if you're trading full-time you will eventually get bit with a bad run. Why stress over that?

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  #42 (permalink)
James11
San Francisco CA USA
 
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Hi there,

Thanks for sharing your set up.

Is this a strategy you developed?

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  #43 (permalink)
 
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 WoodyFox 
Columbus, Ohio
 
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DaretoDo View Post
Thanks for posting, it's an interesting topic. A few thoughts I have...

- No stop (or very large stop) strategies are brutal psychologically. I prefer my job to be low-stress. I was a "gunslinger" back in the day; ran no stops and whatnot and the bad days are....bad.

- I believe there is a place for no stop strategies but I would argue that options are a better way to use them. Cheap OTM long calls/puts can do a lot of work for you with exact risk controls. Obviously you would have to alter your trade frequency, slippage, etc. but SPY weeklies are a viable vehicle for intraday trading.

- If you're having a big problem getting stopped out than you need to work on your entries. Order book and footprint/heatmap tools are excellent for finding precise entries and possible stop run locations.

- Listen to most professional traders who have been consistent over long stretches and you'll hear a common refrain; TAKE LOSSES EARLY. You can back test all day long with incredible results but if you're trading full-time you will eventually get bit with a bad run. Why stress over that?

Good points, but I'm not sure anybody is suggesting only no stop strats to find a best Risk Reward ratio. Just whether a best ratio exists?

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  #44 (permalink)
DaretoDo
Virginia Beach, Virginia
 
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WoodyFox View Post
Good points, but I'm not sure anybody is suggesting only no stop strats to find a best Risk Reward ratio. Just whether a best ratio exists?

The original post is suggesting no/large stops unless I'm reading it wrong which may very well be the case! :-)

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  #45 (permalink)
 
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 WoodyFox 
Columbus, Ohio
 
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DaretoDo View Post
The original post is suggesting no/large stops unless I'm reading it wrong which may very well be the case! :-)

Sorry, I do see that now. I'm to caught up in the details of best Risk Reward. LOL

So I do agree more with you on this point to the original poster.

Mean reversion strats are easy to build without stops, but like you said the MAE can be painful.

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  #46 (permalink)
 
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 Madness 
Tampa Florida
 
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Big Mike View Post
@Madness, just wanted to say I like your avatar

Well thank you Mike. It's part of my trading firm logo.

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  #47 (permalink)
 rcs8 
Jacksonville Florida USA
 
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Madness View Post



How was your Friday TWDsje?

With all due respect, I have been using this particular strategy for 13 months, and I'm not here to argue with you about your way of seeing things. If you can't wrap your head around how this works, that doesn't mean it doesn't. I have seen other ways people trade and although Iíve been around since the dot com, I too cannot wrap my head around how they do it. But it works regardless of what I believe.

Iím not selling anything so I do not have to divulge my live strategy just to prove something to you. I posted this thread to for those who want to create a good or better strategy, but you have to have foresight. If you donít, well my post is just not for you.

You have to understand that if I was to look at my current live strategy with your way of thinking, I would have dumped it thinking it doesn't work.

I will show you just 3 of the trades because I can't fit the whole chart with all 9 trades on Friday, it would be too squashed and not legible. For your inquisitive pleasure, I've taken off all my indicators.



There is nothing form fitting about what you see. I'm just accurately reaching for 10pts, and I've used the very same method that I describe in my second post on how to avoid losses, as much as possible.

Just like I said before. If you have a crap strategy, you can remove the stop all you want, but you will still get the same crap results. It's not the stops.

Stop loss disclaimer: I am not encouraging to not use stop losses. What I am trying to present is a way of testing if a strategy can work, prior to implementing a stop strategy. Place stops where you feel comfortable. I have a stop, but it is where I feel comfortable. I encourage you to do the same.


Madness... intrigued by your strategy. Do you use it on a 1 minute chart? What triggers the entry? Thanks in advance.

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  #48 (permalink)
 
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 Madness 
Tampa Florida
 
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WoodyFox View Post
Maybe so.

The discussion is simple though...Do the markets have preferred ratios. We are simple collaborating the ideal that one does exist...That its possible the market is structured around a ratio that exists for some balanced statistical reason. We already know you can make money using such methods, why not make it a fun exercise right?

More often when finding edges, peeps will look to find what the market will give them. Sometimes its nice to set your own terms of what you would like to get and then wrap the market around that. I mentioned this once before on another thread and was questioned by a fellow successful trader (One that many would regard highly here) how the ideal of this was confusing to him. I could tell he was very off put by this and felt his scepticism. But the simple truth is a lot of good edges live around the 3.5 mark, and I agree this is a good goal to live around. I do not in any way limit myself there, but it can be a gauge if you will.

So back to your quote "In other words, the optimal win loss ratio depends on the signal itself".

Optimal to your signal or the Market itself? Can you tell the difference?

The standard estimation for how long it takes a business to be profitable is about two to three years.

A 15%-20% profit margin for a business is considered good.

In trading, the baseline is 3.5-4:1. What were the parameters that concluded that? Was it any of our chart setups or our in and out signals? No, itís not.

All three of these ďstandardsĒ above are no different than the standard 2 ply toilet paper. There has to be a standard. We need a baseline to measure perfomance.

Whether it is doing business or trading, if you use a standard approach, you'll get standard results. I on the other hand, like to wipe my ass with 5 ply toilet paper.

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  #49 (permalink)
 
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 WoodyFox 
Columbus, Ohio
 
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Madness View Post
The standard estimation for how long it takes a business to be profitable is about two to three years.

A 15%-20% profit margin for a business is considered good.

In trading, the baseline is 3.5-4:1. What were the parameters that concluded that? Was it any of our chart setups or in and out signals? No, itís not.

All three of these ďstandardsĒ above are no different than the standard 2 ply toilet paper. There has to be a standard. We need a baseline to measure perfomance.

Whether it is doing business or trading, if you use a standard approach, you'll get standard results. I on the other hand, like to wipe my ass with 5 ply toilet paper.

LOL. Heck what about 10 ply tires. Use those for awhile and you better get more TP.

3.5/1...350% even with 66% bad product? No overhead and worrying whether you keep the doors open during Covid.

They can keep their 15 to 20 profit margin.

But I do get your point.

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  #50 (permalink)
 
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 Madness 
Tampa Florida
 
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WoodyFox View Post
Listen, I'm tired of explaining the same thing over and over. We are not looking for a pretty high reward factor. And no the examples are not silly . If you would read the posts in there entirety, you would notice post 22 and I quote

"Also knowing how to calculate standard deviation under different time frames, you will start to see this 3.5/1 keeps working at higher a lower time frames. That of course is limited as you near the extremities. There are additional factors that must be considered both ways."

I repeat for the nth time... No one is saying there aren't a gazillion things that can change a risk reward ratio. We are simply entertaining a fun experiment to delve into the conception of some optimal risk reward ratio that is best fitting to a market in most conditions. Whether this exist is just an experiment. You my friend, with emotion, are clearly against the ideal of this. I share some of your doubts. But I must confess, you wear me out and have made it no longer a fun experiment. LOL.

Don't take this personal, I think you just didn't understand the thread as the way I do.

Stay well my friend... we will cross in another thread and then we will see I to I.

My original post is meant to open minds into thinking outside of the box. If this approach works for me, it can work for others. But clearly, some people just donít get it. They just regurgitated ďstandardĒ remarks, related to standard trading, found on the standard internet. God forbid you attempt to deviate from their flat earth thinking, they will beat you with a stick until you comply to their indoctrination. Stay open minded, and keep experimenting.

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