Risk Reward Ratio in modern FOREX market

RR ratio tells us how much do we risk (Stop loss) to get the reward (Target profit). Conservatively, the value for reward should be at least twice the risk.

 

Traders would often completely disregard any trading system with unfavourable RRR.

 

However, it is necessary to realise, that increasing RRR leads to increased frequency of losing trades. In nearly chaotic market losses will get triggered more in direct proportion with increased profit targets.

Chaos warfare MT4 EA. Aggressive averaging. Module where we accept loss only at major trend reversal (Defined by EMA crossover). EA will be closing hundreds of profitable trades while trend lasts. It range created at trend reversal it is sometimes able to change trading direction without taking loss.

 

Looking for profit 10 times larger that risk, will get you absolutely nowhere if you lose more than 9 out of 10 entries. Decreasing the profit target compared to stop loss will increase the frequency of winning trades

 

Negative RRR would be avoided by conservative traders like a plague.

 

Yet, it can be applied to various trading systems with great results.

RED king MT4 EA. Scalping during the trend. Instead of accepting the loss at trend reversal, system hedges existing positions with increased lot size. As a result, it is able to get out the most trading situations in profit. Loss is only accepted if hedge trade fails. According to historical data system takes less than one loss per year.

 

It is even completely ok to look for  1 pips of profit, risking 100 pips. As long as the frequency of winners surpasses 99,9 percent. Considering the volatility of forex market. Signal and systems able to reach this threshold are not uncommon. Those systems will win frequently, taking few bigger loses far apart. Improving the RRR can sometimes benefit even the system with unfavourable (negative) RRR. Above mentioned system can do better if we would look for 3 pips of profit instead of 1. But doesn't have to.

 

Conclusion

RRR is always dependent on trading system. Alone it means very little.

 

Both, systems with favourable (Candle trio) and extremely unfavourable (RED king) Risk Reward Ratio can do well if properly optimized. This is also proved by hundreds of Live account profiting with various, often negative  RRR.

 

RRR is much more complex than often perceived and should be always considered together with other system parameter. Such as winning frequency.

 

In the end, the only thing that really matters, are the green number at the end of the year.

 

Free your mind. Stop limiting your approach by aged principles.

 

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“Trading FOREX since 2006. Full time trader and web developer since 2013. My two biggest hobbies are trading and web development. In TheForexKings I managed to connect both of them. Even after 12 years of trading I still have the same passion for the market as at the beginning. The aspect I enjoy the most : development and testing of new ideas.” 

 

Only in 2016 - 2017 we have created more than 400 forex strategies. During this period we have also developed and published +200 MT4 Expert advisors based on those strategies. We are dedicated to provide you with viable and complete trading systems that have thrived in extensive historical testing. We want to give you complete and transparent trading solutions, that once mastered ,will set you financially free. We want to give you a fighting and winning chance in the market. ” 

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