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    USD/CAD - Sell *Trade closed at +1.23 R:R* - Risk / Reward & Trade management puzzle!

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    fxtrades

    Posts : 119
    Join date : 2010-05-18

    USD/CAD - Sell *Trade closed at +1.23 R:R* - Risk / Reward & Trade management puzzle!

    Post  fxtrades on Thu Feb 24, 2011 2:46 pm

    Hi,

    Didn't have time to post this one at the time, however I would like to use this as an example of trade management and risk/reward questions.

    Entry was taken at break of hourly pin touching descending trend line. Entry was 0.9921, overall target was previous major support at 0.9826. Risk was 42 pips. Final target was 95 pips.

    Without closing this trade early, this would have netted an R:R of 2.26, however my trade netted me an R:R of 1.23 as I partially closed the trade out at two minor S/R levels on route and finally at the target.

    I get the feeling a 1.23 R:R will not see my reach consistently profitable trading, however equally looking at this chart price had to move a long way to get to 2.26 R:R which will not always happen...

    So I guess I'm interested to know how others would have managed this trade? Whether we should close out trades partially on route to a final target? or just get a stop to BE at say 1:1 R:R or first S/R level and then shoot for 2:1 , 3:1 R:R or settle at BE?

    Any thoughts most welcome! Smile


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    Wig

    Posts : 616
    Join date : 2009-10-02

    Re: USD/CAD - Sell *Trade closed at +1.23 R:R* - Risk / Reward & Trade management puzzle!

    Post  Wig on Thu Feb 24, 2011 4:35 pm

    great question! the crux of trade management perhaps?

    I've been reviewing all my trades recently, and seeing what the results would have been had I closed out every single trade at varying levels of RRP travelled in my direction.

    ie +1 +1.5 +2 etc to attempt to find the optimum distance for my entries... it was a spreadsheet exercise so I had to assume if trades didn't reach target they hit stop as I couldn't be arsed to trawl through and manage stops every time. turns out a profit target of around +3.2 RRP would be optimum in terms of over all account growth, but I didn't like the look of the drawdowns pale

    No reason +1.23 won't see you reach consistent profits - if your style is all about getting trades to breakeven asap, if your average win was +1.23RRP but through the same trade management your average loss was only -0.5RRP you only need to win one in three to be a conistently profitable trader

    so in answer to your question... no idea Suspect


    Nice pin trade by the way

    fxtrades

    Posts : 119
    Join date : 2010-05-18

    Re: USD/CAD - Sell *Trade closed at +1.23 R:R* - Risk / Reward & Trade management puzzle!

    Post  fxtrades on Thu Feb 24, 2011 7:42 pm

    Thanks for your thought Wig

    Just posting this as a starter to this puzzle...

    Assuming a £10 risk per trade and a 1.25 R:R per trade and 100 trades, figures would be as follows:

    Win all trades: £1250

    Win 50% / lose 50% of trades: £125

    Win 33% of trades / Break even on 34% of trades / lose 33% of trades: £82.50

    Therefore winning 1 trade out of 3 at 1.25 R:R and breaking even on 1 out of 3, assuming you risk 2% on each trade, with a starting balance of £500, your account would grow by £82.50 after 100 or 16.5%.

    Assuming 33 trades a month, this is only 5.5% account growth per month.

    Having written this post, I think I'll knock up a spreadsheet to see if I can find an optimum win / lose / BE percentage of trades and what difference the R:R has on account growth.
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    Wig

    Posts : 616
    Join date : 2009-10-02

    Re: USD/CAD - Sell *Trade closed at +1.23 R:R* - Risk / Reward & Trade management puzzle!

    Post  Wig on Thu Feb 24, 2011 8:17 pm

    Hi fx - are you also taking into account the reduced losses you'll experience as a result of your more conservative trade management scratch

    if 1.25 is a result of scaling out to b/e early, then you need to factor that into youur assumed avereage loss surely - ie it'll be less than -1RRP

    in which case you're probably understating your returns...

    cheers
    Wig

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    Re: USD/CAD - Sell *Trade closed at +1.23 R:R* - Risk / Reward & Trade management puzzle!

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