Why Risk Reward Ratios Don’t Work and What You Should Do Instead

Today's video is the recording of our webinar on November 18th, 2014 with Erich Senft of Indicator Warehouse. To learn more from Erich, be sure to visit his Trader Kingdom expert page: http://bit.ly/1v3hU5v ---------------------------------------- Erich's Most Popular Webinar on Trader Kingdom: Cracking the Code - How to Build or Choose a Day Trading System: http://bit.ly/1tnkKNf Erich's Most Popular Article on Trader Kingdom: How to Determine Contract Size and Tick Values - http://bit.ly/11lQrAa --------------------------------------- If you have been around trading any time at all, you have likely come across the concept of Risk Reward Ratios for judging the validity of a trade, but do they work? Not according to Erich Senft, a CTA with TradersHelpingTraders.com who maintains that not only do they not work, but they can be downright detrimental to your success as a trader! Erich maintains that Risk Reward Ratios are one of those self-perpetuating myths that sound good on the surface, but do not work as well in real life. To find out what does work, join Erich for this live webinar as he discusses the following topics: The danger of using Risk Reward ratios How Risk Reward Ratios can actually lead you into taking a bad trade Why Risk Reward Ratios are a poor judge of trade quality and what you should be using How professional traders use Risk Reward Ratios (it's not the way most traders do!) What you should be doing to give yourself an “edge” Erich Senft, has been actively involved in the Futures markets for 15 years. He is a registered CTA and the main man behind TradersHelpingTraders.com and SupportandResistance.com. He is recognized by many as an expert in the field of support and resistance trading.

Comments

1. how did it turn from a Risk Reward rant to a Position Size preaching about halfway through?
2. this is one garbage video...its the only thing that will help you from blowing up your account.
3. the angry comments below are misinterpreting this guy's message. He's basically saying instead of taking profit at 2 or 3 R (cutting yourself short) instead you should just follow the trend for as long as possible.
4. risk reward is for the stock market, its gambling in the emini's - who the fuck wants to be wrong 50% of the time when you don't have to. Enter on probabilities and sentiment at that moment not statistics and odds.
5. Lol I just read all the comments here - Iam a consistent profitable trader in the emini NQ daily scalping, I don't take trades on the hopes of risk reward, I don't take my set up into supp/Ressit - I take my profits there, sentiment has to measured in order to go for longer runs or your just gambling or you just sit there hoping it gets to your reward. I take profits at targets and keep my stops at inflection points at my entry and move up quickly. risk reward is for greed and gambler's in the emini's - get to a obtainable daily goal of ticks and stop, only take 5 star setups. Consistency in your edge is the more important, Don't try to be someone your not when it comes to this business, discipline what you already are.
6. I do not think it is crap as people are commenting. It's the most common practical issue: None can predict how much the reward will be! One can only put a SL and size one's position depending on the risk capital.
7. worst video ever,waste of time to watch
8. can't agree more!
9. Great video Erich..thanks for the info..i don't think a lot of people look at it this way..it has served me well
10. 1:1 1:3 /... makes no difference ! the reward should never be a reason to enter!
    the reason to enter is the setup only!
    its not the amount of risk, its simply the distance from your entry to your stop point, so it is a matter of the size not the value.
    
    if your setup requires double the risk, then enter with half the size and you meet the Money management rules.
    
    simple
11. Don't knock something that works for somebody. If it works for him, it works for him. Now, mathematically, he's correct; he's leveraging the same amount of risk as a tight RRR, but allowing for more breathing room. The "downside" is that you may not profit as much if the stock goes up unless you buy-in as the market progresses (which should actually maintain the same level of risk provided the probability of upside is high)... It is definitely a fact that RRRs are predicated an assuming gains that you don't already realize... "probability" of upside is the same, regardless of what you RRR is. So if the probability is high, then give it some breathing room below. Simple. Don't like it, use a method that works for you.
12. Crap video. Risk reward is probably the most important aspect to be profitable in trading. To be statistically superior. You ask why do 90% of traders lose? Well, I guess because they listen to clowns like you. Now are you implying that advanced harmonic patterns that usually offer a risk reward ratio greater than 1:1 are useless? And because they offer risk reward greater than 1:1 we shouldn't trade them? You say we don't know where the market is going? Okay, we don't know. But we know that often times when the market retraces, it reaches a certain fibo level. Or previous structure high or low. Or nearest resistance or support. You should only enter a trade when the probability is high and the risk reward ratio as well. To sum up: you don't make a risk reward greater than 1:1 randomly out of thin air. You find a perfect set up with high probability that already offers that kind of risk reward for you!! This guy is so dumb it's not funny anymore. Also I suggest you change video title to: why risk reward ratios don't work for me. The answer, cause you're a clueless potatohead numbskull who shouldn't trade in the first place not to mention teach others. Please, shove your crappy opinion to your tiny asshole and stop misleading people. Thank you.
13. This is the dumbest video on trading in history of the world! What the fuck are you talking about? Risk/Reward is the most important thing to think about when taking a trade, or in simpler words, "Is the juice worth the squeeze"? If you are taking trades with 1/1 or 1.4/1 R/R I would be shocked if you were a profitable trader. With that type of R/R you need to have a 60%+ accuracy consistently to have any profit even worth mentioning. And the trading examples you are giving are just pure crap. Nobody in their right mind should be taking those kinds of trades. If I have a trade that has a R/R profile less then 1.9/1 I do not enter, its not worth it. My average R/R is around 2.7/1 and I am about a 55% trader, so yes I am very profitable.
    This advice is pure crap.
14. OMG, redundant long winded... You say the same thing OVER AND OVER AND OVER, first half hour could have been said in 5 minutes, moving on.
15. What platform is that?
16. What platform is that?
17. Brilliant, thank you.
18. He is saying every trade is a coin flip. Chart coin flips. It trades in a flat range. That doesn't resemble most trading vehicles.
19. Makes total sense! I've been wanting to do this for a long time, but none of the pros have ever spoken about it, or may be they have and i've never paid attention. I have now improvised my strategy to adjust my position size to keep my risk constant. Thanks a lot for bringing this up....
20. I can't be succesfull enought with your trading technic , there is no significant strategy. You place your trades on suppositions and you've to tell you that it's not enought to be profitable in the long term.