Risk/reward ratio problems - Risk management

[jakolinko]

No doubt that risk management is very important in a trading and that you can not success without in a trading. But, regarding the R:R ive got some questions.

Let's say your R:R is 1:3, and you start trading, and what if trade doesn't go in your favor? You cannot close it 3 times bigger than your loss, for example; its impossible for it to go more than 1.5% up for your profit. Then all of the 1:3 R:R theory falls into the water? Or what? Can someone explain it better?

[jakolinko]

bump

[Oilacris]

No doubt that risk management is very important in a trading and that you can not success without in a trading. But, regarding the R:R ive got some questions.

Let's say your R:R is 1:3, and you start trading, and what if trade doesn't go in your favor? You cannot close it 3 times bigger than your loss, for example; its impossible for it to go more than 1.5% up for your profit. Then all of the 1:3 R:R theory falls into the water? Or what? Can someone explain it better?

First of all you cant really able to have that fixed reward ratio unless if you do go long but for short it isn't possible. 1:3 would be hard but talking about 1.5% then its really achievable even on 3% or more depending on how the market moves but always put up on your mind to set always a stop loss and don't never ever chase your loss.Dont rush up too much, just put up on the money you can risk but don't always depend on a having a fixed target because on these market conditions it might able to met or break your expectations.

[reactorjuno]

No doubt that risk management is very important in a trading and that you can not success without in a trading. But, regarding the R:R ive got some questions.

Let's say your R:R is 1:3, and you start trading, and what if trade doesn't go in your favor? You cannot close it 3 times bigger than your loss, for example; its impossible for it to go more than 1.5% up for your profit. Then all of the 1:3 R:R theory falls into the water? Or what? Can someone explain it better?

Your post is not very clear:

You cannot close it 3 times bigger than your loss

... but in that case you lose 1 and move on to the next trade. With a 1:3 goal, you will be good with a 40% success rate.

But I'd rather go for something like:
Stop loss= -1
Profit= +2

This way you'll earn money even with a 50% success rate in your chosen trades. But of course the 50% success is the hardest part, but never underestimate how tough it is (for many reasons) to stick to your RR discipline.

[chris200x9]

It is good to have some targets set for each and every trade but sometimes needs to take an instant decision based on market condition or news comes out to reduce your losses. But if you bought good coins then no need to worry because you may still reach your preset target but it may take a long time so I prefer to go always with long instead of day trading.

It is quite hard to meet every time the preset target for trades so you either need to book profit or losses early based on market condition.

[dinoloverpete]

The biggest issue with risk/reward strategies is that they are too rigid. Sunk cost theory is so important in investing. Just because a coin has already increased x amount or fallen x amount this does not mean anything for the future, just because you already gained or lost x does not mean your decision should be any different. Let's take the following example.

You invest in BTC and it increases 2% which was your goal (great). Your strategy would now suggest selling your coin. However what if all your knowledge and the information you have at hand suggests bitcoin will increase again another 3%. Should you sell because you already reached your goal? No - you should not, it does not matter you already gained, you should stay invested if your expectation is for a further increase.

This situation occurs more so when things are going bad. Time and time again people say 'I think btc is going to 0 but there's no point selling now' - either they are lying or they are foolish, if that's really there expectation then of course they should sell. It does not matter they already lost 80%.

[reactorjuno]

It is good to have some targets set for each and every trade but sometimes needs to take an instant decision based on market condition or news comes out to reduce your losses. But if you bought good coins then no need to worry because you may still reach your preset target but it may take a long time so I prefer to go always with long instead of day trading.

It is quite hard to meet every time the preset target for trades so you either need to book profit or losses early based on market condition.

Off topic dude, if he is a trader then he takes his positions short term or middle term.

The biggest issue with risk/reward strategies is that they are too rigid. Sunk cost theory is so important in investing. Just because a coin has already increased x amount or fallen x amount this does not mean anything for the future, just because you already gained or lost x does not mean your decision should be any different. Let's take the following example.

You invest in BTC and it increases 2% which was your goal (great). Your strategy would now suggest selling your coin. However what if all your knowledge and the information you have at hand suggests bitcoin will increase again another 3%. Should you sell because you already reached your goal? No - you should not, it does not matter you already gained, you should stay invested if your expectation is for a further increase.

This situation occurs more so when things are going bad. Time and time again people say 'I think btc is going to 0 but there's no point selling now' - either they are lying or they are foolish, if that's really there expectation then of course they should sell. It does not matter they already lost 80%.

With all my respect, very bad advice. Do you ever trade?

If your strategy has proved to be profitable, then never ever deviate from your risk management rules. If you sold to get a profit of +2, and the coin still goes up, you should not feel bad about it, because next time the price will go down right after you sold, and this time you'll feel good about it.

Good traders don't really care of long term. How about people who bought Bitcoin at $18k last year? For sure they thought the coin would still rise, it did until $19k, then it collapsed, if they did not sell at $16k then it sucks very much for them right now. A good trader would have been able to see the bearish trend and sold immediately. That's what a stop loss is for. If you buy a coin, and pray that it will go up by 200% or 300% then it is gambling, not trading.  

[dinoloverpete]

It is good to have some targets set for each and every trade but sometimes needs to take an instant decision based on market condition or news comes out to reduce your losses. But if you bought good coins then no need to worry because you may still reach your preset target but it may take a long time so I prefer to go always with long instead of day trading.

It is quite hard to meet every time the preset target for trades so you either need to book profit or losses early based on market condition.

Off topic dude, if he is a trader then he takes his positions short term or middle term.

The biggest issue with risk/reward strategies is that they are too rigid. Sunk cost theory is so important in investing. Just because a coin has already increased x amount or fallen x amount this does not mean anything for the future, just because you already gained or lost x does not mean your decision should be any different. Let's take the following example.

You invest in BTC and it increases 2% which was your goal (great). Your strategy would now suggest selling your coin. However what if all your knowledge and the information you have at hand suggests bitcoin will increase again another 3%. Should you sell because you already reached your goal? No - you should not, it does not matter you already gained, you should stay invested if your expectation is for a further increase.

This situation occurs more so when things are going bad. Time and time again people say 'I think btc is going to 0 but there's no point selling now' - either they are lying or they are foolish, if that's really there expectation then of course they should sell. It does not matter they already lost 80%.

With all my respect, very bad advice. Do you ever trade?

If your strategy has proved to be profitable, then never ever deviate from your risk management rules. If you sold to get a profit of +2, and the coin still goes up, you should not feel bad about it, because next time the price will go down right after you sold, and this time you'll feel good about it.

Good traders don't really care of long term. How about people who bought Bitcoin at $18k last year? For sure they thought the coin would still rise, it did until $19k, then it collapsed, if they did not sell at $16k then it sucks very much for them right now. A good trader would have been able to see the bearish trend and sold immediately. That's what a stop loss is for. If you buy a coin, and pray that it will go up by 200% or 300% then it is gambling, not trading.  

I think you misunderstand the point I am making. In your scenario are people who had the idea that the price would soon fall just they did not know when, in such a scenario of course it is good to sell. My point is that many people think 'my coin already went up 10% I should sell even though I think it's going to increase further'. The fact a coin has already gone up 10% is completely irrelevant, what matters is the current situation. The same way it doesn't matter if you lost or profited the day before, you still must make the best decisions at that time. And yes I trade and have been successful.

[reactorjuno]

It is good to have some targets set for each and every trade but sometimes needs to take an instant decision based on market condition or news comes out to reduce your losses. But if you bought good coins then no need to worry because you may still reach your preset target but it may take a long time so I prefer to go always with long instead of day trading.

It is quite hard to meet every time the preset target for trades so you either need to book profit or losses early based on market condition.

Off topic dude, if he is a trader then he takes his positions short term or middle term.

The biggest issue with risk/reward strategies is that they are too rigid. Sunk cost theory is so important in investing. Just because a coin has already increased x amount or fallen x amount this does not mean anything for the future, just because you already gained or lost x does not mean your decision should be any different. Let's take the following example.

You invest in BTC and it increases 2% which was your goal (great). Your strategy would now suggest selling your coin. However what if all your knowledge and the information you have at hand suggests bitcoin will increase again another 3%. Should you sell because you already reached your goal? No - you should not, it does not matter you already gained, you should stay invested if your expectation is for a further increase.

This situation occurs more so when things are going bad. Time and time again people say 'I think btc is going to 0 but there's no point selling now' - either they are lying or they are foolish, if that's really there expectation then of course they should sell. It does not matter they already lost 80%.

With all my respect, very bad advice. Do you ever trade?

If your strategy has proved to be profitable, then never ever deviate from your risk management rules. If you sold to get a profit of +2, and the coin still goes up, you should not feel bad about it, because next time the price will go down right after you sold, and this time you'll feel good about it.

Good traders don't really care of long term. How about people who bought Bitcoin at $18k last year? For sure they thought the coin would still rise, it did until $19k, then it collapsed, if they did not sell at $16k then it sucks very much for them right now. A good trader would have been able to see the bearish trend and sold immediately. That's what a stop loss is for. If you buy a coin, and pray that it will go up by 200% or 300% then it is gambling, not trading.  

I think you misunderstand the point I am making. In your scenario are people who had the idea that the price would soon fall just they did not know when, in such a scenario of course it is good to sell. My point is that many people think 'my coin already went up 10% I should sell even though I think it's going to increase further'. The fact a coin has already gone up 10% is completely irrelevant, what matters is the current situation. The same way it doesn't matter if you lost or profited the day before, you still must make the best decisions at that time. And yes I trade and have been successful.

Fair enough, I understand what you mean. Sorry if I sounded a little harsh in my previous post.
There was a very clear situation like the one you describe in December, price went from something like 12k to 18k within a few days. Some crazy stuff, but rather unusual you will agree with me on that too bad I was not trading at that time, would have been curious to see what the chart analysis said. Really amazing times, I doubt even the  best traders saw it coming

[dinoloverpete]

It is good to have some targets set for each and every trade but sometimes needs to take an instant decision based on market condition or news comes out to reduce your losses. But if you bought good coins then no need to worry because you may still reach your preset target but it may take a long time so I prefer to go always with long instead of day trading.

It is quite hard to meet every time the preset target for trades so you either need to book profit or losses early based on market condition.

Off topic dude, if he is a trader then he takes his positions short term or middle term.

The biggest issue with risk/reward strategies is that they are too rigid. Sunk cost theory is so important in investing. Just because a coin has already increased x amount or fallen x amount this does not mean anything for the future, just because you already gained or lost x does not mean your decision should be any different. Let's take the following example.

You invest in BTC and it increases 2% which was your goal (great). Your strategy would now suggest selling your coin. However what if all your knowledge and the information you have at hand suggests bitcoin will increase again another 3%. Should you sell because you already reached your goal? No - you should not, it does not matter you already gained, you should stay invested if your expectation is for a further increase.

This situation occurs more so when things are going bad. Time and time again people say 'I think btc is going to 0 but there's no point selling now' - either they are lying or they are foolish, if that's really there expectation then of course they should sell. It does not matter they already lost 80%.

With all my respect, very bad advice. Do you ever trade?

If your strategy has proved to be profitable, then never ever deviate from your risk management rules. If you sold to get a profit of +2, and the coin still goes up, you should not feel bad about it, because next time the price will go down right after you sold, and this time you'll feel good about it.

Good traders don't really care of long term. How about people who bought Bitcoin at $18k last year? For sure they thought the coin would still rise, it did until $19k, then it collapsed, if they did not sell at $16k then it sucks very much for them right now. A good trader would have been able to see the bearish trend and sold immediately. That's what a stop loss is for. If you buy a coin, and pray that it will go up by 200% or 300% then it is gambling, not trading.  

I think you misunderstand the point I am making. In your scenario are people who had the idea that the price would soon fall just they did not know when, in such a scenario of course it is good to sell. My point is that many people think 'my coin already went up 10% I should sell even though I think it's going to increase further'. The fact a coin has already gone up 10% is completely irrelevant, what matters is the current situation. The same way it doesn't matter if you lost or profited the day before, you still must make the best decisions at that time. And yes I trade and have been successful.

Fair enough, I understand what you mean. Sorry if I sounded a little harsh in my previous post.
There was a very clear situation like the one you describe in December, price went from something like 12k to 18k within a few days. Some crazy stuff, but rather unusual you will agree with me on that too bad I was not trading at that time, would have been curious to see what the chart analysis said. Really amazing times, I doubt even the  best traders saw it coming

It's quite alright. It really was a crazy time. Chart analysis and really any kind of analysis tends to go out the window in those times. It's really not much more than luck as to making the best of decisions. I'm sure many signals were strong buys just hours before the market went crashing down from 20k. I think most people knew the growth was unsustainable and a fall was coming but probably the majority didn't expect it so soon, I myself thought we would go to at least 50k before a major crash. Hindsight is the most wonderful of things.

[frowsiter]

No doubt that risk management is very important in a trading and that you can not success without in a trading. But, regarding the R:R ive got some questions.

Let's say your R:R is 1:3, and you start trading, and what if trade doesn't go in your favor? You cannot close it 3 times bigger than your loss, for example; its impossible for it to go more than 1.5% up for your profit. Then all of the 1:3 R:R theory falls into the water? Or what? Can someone explain it better?

Thats the number which you are sticking to or may be thats the ratio you have decided by yourself and I guess you need to come out of it first and then you can decided another strategy so that you will have good profits back to you. You simply start a trade first and depending upon the coin which you are trading you should put up 5-10% loss as lowest limits of bottom and also keep upto 5% of profits to take up so that you can quickly gain and close the trade. The loss is set to bigger limit because truly speaking you need to give your trade a time and it may happen that before it goes that far down it may just come up very fast and profit you more. So you have to keep changing your % stop loss likewise to have higher success rate.

[dinoloverpete]

No doubt that risk management is very important in a trading and that you can not success without in a trading. But, regarding the R:R ive got some questions.

Let's say your R:R is 1:3, and you start trading, and what if trade doesn't go in your favor? You cannot close it 3 times bigger than your loss, for example; its impossible for it to go more than 1.5% up for your profit. Then all of the 1:3 R:R theory falls into the water? Or what? Can someone explain it better?

Thats the number which you are sticking to or may be thats the ratio you have decided by yourself and I guess you need to come out of it first and then you can decided another strategy so that you will have good profits back to you. You simply start a trade first and depending upon the coin which you are trading you should put up 5-10% loss as lowest limits of bottom and also keep upto 5% of profits to take up so that you can quickly gain and close the trade. The loss is set to bigger limit because truly speaking you need to give your trade a time and it may happen that before it goes that far down it may just come up very fast and profit you more. So you have to keep changing your % stop loss likewise to have higher success rate.

Are you suggesting that you should continue to move your stoploss down? If that's the case then that's very much against the idea of a stoploss in the first place. I think I must have interpreted your message wrongfully. Even though I in large parts disagree with the idea of a stoploss for the majority they are highly necessary and should be fixed.

[reactorjuno]

Thats the number which you are sticking to or may be thats the ratio you have decided by yourself and I guess you need to come out of it first and then you can decided another strategy so that you will have good profits back to you. You simply start a trade first and depending upon the coin which you are trading you should put up 5-10% loss as lowest limits of bottom and also keep upto 5% of profits to take up so that you can quickly gain and close the trade. The loss is set to bigger limit because truly speaking you need to give your trade a time and it may happen that before it goes that far down it may just come up very fast and profit you more. So you have to keep changing your % stop loss likewise to have higher success rate.

And that's exactly why people lose money, not only in cryptocurrencies but also in the stock market. If you set up a stop loss that will make you lose more than the potential profit, you will need 60% of more successful trades, very demanding mentally and in my opinion a very bad idea. Interestingly, that's what many beginners do. Go figure...   

[Luckym7]

If you go long then you can do a better result but if you go in short then it is totally impossible. Because a fixed ratio reward is always challenging for achieve. 1.5% is achievable. Even 3% can be achieving easily if the market moves good. You must make a ready decision for stop lose. Never try for recover and don’t make overtrade. Invest and make trade such amount that you can afford to lose. Never make a fixed target because you can’t achieve a fixed target amount of profit all time. More chance for lose.