Bookworm 

Risk and reward are not enough to evaluate an edge. You also need the probability. A high Reward to Risk ratio may be invalidated by a very low probability and a low ratio may be profitable if the probability is high enough.

Absolutely. I didn't think for a second that it is the decisive factor in a trading system.

From hours spent on testing I believe that probability and risk-reward are inversely correlated. You either have a system that loses most trades, but occasionally hits a run, or a system that wins a little bit most of the time, but occasionally takes a big loss. Trend following is the example of the former, and reversion to the mean the latter. There doesn't seem to be a way out of this trade-off. I would love to design a strategy with a win rate of 80% and RR of 1:10. Dreams...

Without diving too much into the math (As I'm not that much capable of it)

I think this changes depending on whom this is being applied to.

As a newbie trader, survival is the priority, protecting funds, winning probability is also not going to be high as being newbie it's very unlikely that one has a strategy developed enough to do that. Probably a range between 1:1 to 1:2.5 would be a sweet spot that would keep a newbie in the game long enough till he/she upgrades to the next level.

A professional trader may have a completely apposite approach to this, there are a lot of scalpers in the market who are looking for small profits over each trade but have a good win percentages.

At least claimed as I have no proofs either way.

Just my 2c. Thanks for making this thread, very helpful.

This is a pretty good discussion of the issue by Al Brooks:

I’ve said this here several times before, and I know it’s not at all a popular perspective, but for myself I’d rather have a slightly less profitable (lower PF, say) system, overall, with a higher win-rate (i.e. with a lower ‘R’), rather than a “better” one which will inevitably have some worse losing runs and patches.

It’s not so much the “consecutive losers” scenario that bothers me. It’s the long periods with many losers interspersed by only few winners. The “bad patches,” as I’ve seen them described.

The scenario I’m desperate to avoid is getting into a position where I can’t tell whether what I’m doing has stopped working or I’m just having an unusually bad run, because if I get into that position, I won’t know whether or not to stop trading. This is a really big deal. For me.

I also believe (but obviously can’t even begin to prove) that very, very few retail traders are steadily profitable with “rewards” significantly larger than “risks”.

Tymbeline 

It’s not so much the “consecutive losers” scenario that bothers me. It’s the long periods with many losers interspersed by only few winners. The “bad patches,” as I’ve seen them described. The scenario I’m desperate to avoid is getting into a position where I can’t tell whether what I’m doing has stopped working or I’m just having an unusually bad run, because if I get into that position, I won’t know whether or not to stop trading. This is a really big deal. For me.

If you have a good edge and trade discretionary, I think a way to remedy this fear is to practice scratching trades. You should be able to develop a feel for trades which aren't working; and not wait until they hit the stop.

Tymbeline 

I’ve said this here several times before, and I know it’s not at all a popular perspective, but for myself I’d rather have a slightly less profitable (lower PF, say) system, overall, with a higher win-rate (i.e. with a lower ‘R’), rather than a “better” one which will inevitably have some worse losing runs and patches. It’s not so much the “consecutive losers” scenario that bothers me. It’s the long periods with many losers interspersed by only few winners. The “bad patches,” as I’ve seen them described. The scenario I’m desperate to avoid is getting into a position where I can’t tell whether what I’m doing has stopped working or I’m just having an unusually bad run, because if I get into that position, I won’t know whether or not to stop trading. This is a really big deal. For me. I also believe (but obviously can’t even begin to prove) that very, very few retail traders are steadily profitable with “rewards” significantly larger than “risks”.

Thank you for your post, this is pretty much how I feel. I have numerous examples when a trade gets in the green and then turns around and ends up in a loss. If I took small profits in those instances - rather than waiting for them to turn into a great run - my account would be better off.

Small Dog 

Thank you for your post, this is pretty much how I feel. I have numerous examples when a trade gets in the green and then turns around and ends up in a loss. If I took small profits in those instances - rather than waiting for them to turn into a great run - my account would be better off.

This is the tough balance of trading! Been there for sure!