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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
Was watching a video made by @kevinkdog this morning when he showed this great chart, which illustrates nicely the relationship between Risk Reward and Win%. (You can't talk about one of those without the other!). Wasn't sure where to post it but this seemed like a good thread, even if it is two years old now.
Full link to the video. (Its the website not me making it so large!) Kevin does a great job talking about trade statistics using the 30 odd systems he trades as an example.. also a great picture of Kevin himself!
I would say the best risk to reward for me, from my personal experience, is 1:2. It eases the mind and offers you an easy enough target and stop loss IF you’re taking trades from valid areas.
The chart is nice but it's worth mentioning that even if a strategy has positive expectancy, the game changes when the bet becomes a function of the capital.
Mathematically you can take a RR/winrate relation that makese sense and when you risk too much (as a function of your capital), the equity goes to zero.
This is the the F_c value in paper by Kelly..... I recently read this in a book by Minervini (see below), and I think it is often overloooked.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
Thanks @SBtrader82 very interesting. Counterintuitive but correct. If people are wondering about the Math ...
(1.04)^4 * (0.98)^6 = 1.03631 = 3.631% expected return
(1.42)^4 * (0.79)^6 = 0.98836 = -1.164% expected return