Same strategy. 4 options on how to manage trades.
Can use anything from a really tight stop and win very often but small to a very wide one and rarely win but win big.
Which method really makes the most money?
Let's look at the numbers after 100 trades:
Strat 1 with a ridiculous winrate and profit factor
=> 1 RR 95 Wins 5 Losses => Get 90R out!
Strat 2 with very high winrate and profit factor
=> 2 RR 80 Wins 20 Losses => 160 - 20 = 140!
Strat 3 with a 50/50 winrate and high PF & RR
=> 4 RR 50 Wins 50 Losses => 200 - 50 = 150R!
I think you see where this is going...
Strat 4 with a rather low 1/3 winrate and high PF & very high RR
=> 8 RR 33 Wins 67 Losses => 264 - 67 = 197R / 200R!
If you picked the one with the highest risk-to-reward as the most profitable congratulations, you fell for the bait :D Tihi
Strat 5 with a very low winrate no one wants and ordinary PF
=> 16 RR 16 Wins 84 Losses => 256 - 84 = 172R
The best strategy is the one that makes the most profit over the years, with the least risk. Another factor is how long it takes.
Every market has its specificities.
In the world of forex which is my specialty the realistic risk to rewards we get are in the 3 to 7 area.
Less than 3 is not that great, and above 7 does not happen without big pullbacks (that take time).
A reward to risk of above 10 is really not realistic.
With crypto and stocks maybe, but with Forex no.
With FX the time scale I prefer and think is best is 2 days to 2 weeks. The best moves with least noise happen on this one.
Crypto and stocks holding times are also much longer (you could get 20 to 50R or even more with BTC in 2016-2017 but it's a holding period not of a couple of days no it's a couple of months instead).
Commodities (Oil Gold Metals Grains) are close to FX I think.
Of course as with everything else the best risk-to-reward and TF is the one you do best with.
Typical FX strong moves:
What day traders and signal providers do:
And that's a really wide stop... Can you imagine?
It's so stupid to day trade for so many reasons xd
Horrible trends with big pullbacks, missing out on big wins,
noise all the time, wasting one's time, gambling what will happen during a few hours, awful risk to rewards no matter what, a small spread decimates them. Lmao.
Bitcoin. You won't get much out of Bitcoin swingtrading (and day trading is a joke)
And then stocks
And then Warren Buffet
If you bought Ko with 10% of your money and risked 3.3%
You can still trade with 96.7% (can use leverage to pretend it is 100%), and in 10 years you get a profit of 115% + dividends.
Pretty nice!
I don't think trading stocks for a few days or weeks makes sense with all the gaps there are, even if you participate in pre and post markets it still gaps alot between them.
Once a decade stocks go absolutely vertical
George Soros said it's not about how often you win, it's about how much you make when you win.
Strat 1 "always win I am a legend" (I doubt anyone wins that often with a RR of 1) => 90R
Strat 4 (PF of 4) => 200R (about twice as much)
And if you risk 1% each time?
Strat 1 = 144.7% profit
Strat 4 = 546% profit xd Not twice as much. Lots as much!
GG
Compare strat 2 & 4
Strat 2 80% WR & RR 2 After 100 trades we make 140 R
Strat 3 50% WR & RR 4 After 100 trades we make 150 R / 7% more
1% risk =>
Strat 2 = 299% profit (twice as much as 1 btw)
Strat 3 = 330% profit / 10% more
One more reason higher RR is better.
This does not mean one should be obssessed with it and then get stopped all the time and blow up.
It's just that first start with whatever strategy and it's ok to have a RR of 1.5 to 2 maybe, and then when improving it over time the most important goal is to try and increase the payout.
Increasing the winrate is harder and pays less. If possible ok but not the main focus.
Nothing increases profit more than improving the RR.
And keep in mind while trailing a stop you are doing the same as if you closed your trade and are opening a new one (so if the stop is very wide it is like having a poor risk to reward on a new trade).
Can use anything from a really tight stop and win very often but small to a very wide one and rarely win but win big.
Which method really makes the most money?
Let's look at the numbers after 100 trades:
Strat 1 with a ridiculous winrate and profit factor
=> 1 RR 95 Wins 5 Losses => Get 90R out!
Strat 2 with very high winrate and profit factor
=> 2 RR 80 Wins 20 Losses => 160 - 20 = 140!
Strat 3 with a 50/50 winrate and high PF & RR
=> 4 RR 50 Wins 50 Losses => 200 - 50 = 150R!
I think you see where this is going...
Strat 4 with a rather low 1/3 winrate and high PF & very high RR
=> 8 RR 33 Wins 67 Losses => 264 - 67 = 197R / 200R!
If you picked the one with the highest risk-to-reward as the most profitable congratulations, you fell for the bait :D Tihi
Strat 5 with a very low winrate no one wants and ordinary PF
=> 16 RR 16 Wins 84 Losses => 256 - 84 = 172R
The best strategy is the one that makes the most profit over the years, with the least risk. Another factor is how long it takes.
Every market has its specificities.
In the world of forex which is my specialty the realistic risk to rewards we get are in the 3 to 7 area.
Less than 3 is not that great, and above 7 does not happen without big pullbacks (that take time).
A reward to risk of above 10 is really not realistic.
With crypto and stocks maybe, but with Forex no.
With FX the time scale I prefer and think is best is 2 days to 2 weeks. The best moves with least noise happen on this one.
Crypto and stocks holding times are also much longer (you could get 20 to 50R or even more with BTC in 2016-2017 but it's a holding period not of a couple of days no it's a couple of months instead).
Commodities (Oil Gold Metals Grains) are close to FX I think.
Of course as with everything else the best risk-to-reward and TF is the one you do best with.
Typical FX strong moves:
What day traders and signal providers do:
And that's a really wide stop... Can you imagine?
It's so stupid to day trade for so many reasons xd
Horrible trends with big pullbacks, missing out on big wins,
noise all the time, wasting one's time, gambling what will happen during a few hours, awful risk to rewards no matter what, a small spread decimates them. Lmao.
Bitcoin. You won't get much out of Bitcoin swingtrading (and day trading is a joke)
And then stocks
And then Warren Buffet
If you bought Ko with 10% of your money and risked 3.3%
You can still trade with 96.7% (can use leverage to pretend it is 100%), and in 10 years you get a profit of 115% + dividends.
Pretty nice!
I don't think trading stocks for a few days or weeks makes sense with all the gaps there are, even if you participate in pre and post markets it still gaps alot between them.
Once a decade stocks go absolutely vertical
George Soros said it's not about how often you win, it's about how much you make when you win.
Strat 1 "always win I am a legend" (I doubt anyone wins that often with a RR of 1) => 90R
Strat 4 (PF of 4) => 200R (about twice as much)
And if you risk 1% each time?
Strat 1 = 144.7% profit
Strat 4 = 546% profit xd Not twice as much. Lots as much!
GG
Compare strat 2 & 4
Strat 2 80% WR & RR 2 After 100 trades we make 140 R
Strat 3 50% WR & RR 4 After 100 trades we make 150 R / 7% more
1% risk =>
Strat 2 = 299% profit (twice as much as 1 btw)
Strat 3 = 330% profit / 10% more
One more reason higher RR is better.
This does not mean one should be obssessed with it and then get stopped all the time and blow up.
It's just that first start with whatever strategy and it's ok to have a RR of 1.5 to 2 maybe, and then when improving it over time the most important goal is to try and increase the payout.
Increasing the winrate is harder and pays less. If possible ok but not the main focus.
Nothing increases profit more than improving the RR.
And keep in mind while trailing a stop you are doing the same as if you closed your trade and are opening a new one (so if the stop is very wide it is like having a poor risk to reward on a new trade).