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Risk Management Made Easy

jotekfinance
Jan 18 2015 at 15:58
138 posts
Edge (Verisimilitude)
Jan 18 2015 at 15:59
1 posts
Excellent thread Garry, A well informed post on risk management if you don't have/understand this ' failure is inevitable.' I hope you don,t mind if I use your post for newbies in the market. I am tracking your live account and with your understanding of RM, I am sure you will be a successful trader.

Gary Sharp myfxpt com
myfxpt
Jan 19 2015 at 10:12
345 posts
Verisimilitude posted:
Excellent thread Garry, A well informed post on risk management if you don't have/understand this ' failure is inevitable.' I hope you don,t mind if I use your post for newbies in the market. I am tracking your live account and with your understanding of RM, I am sure you will be a successful trader.


Thank you! No problem using this post for newbies...that was the intention! 😎

TakeIt
Jan 23 2015 at 00:13
20 posts
Thank you very much for this post.
The conclusion is this:

myfxpt posted:
But in the end it all comes back to 4 pieces of information - win/lose ratio, risk/reward ratio, LLS, and LLT.


Here in MyFxBook, in Advanced Statistics of each system, we can saw many data.
Profit factor is something that you called win/lose ratio right?
How about others 3 information?
How we can analyse them?
Very happy if you could give an example 😄

Gary Sharp myfxpt com
myfxpt
Jan 23 2015 at 22:20
345 posts
Here in MyFxBook, in Advanced Statistics of each system, we can saw many data.
Profit factor is something that you called win/lose ratio right?
How about others 3 information?
How we can analyse them?
Very happy if you could give an example 😄


Thanks for your feedback.

Actually, the Profit Factor is the risk/reward ratio, and the win/lose ratio is the number of winning trades as opposed to the number of losing trades. If you divide the number of winning trades by the number of losing trades, this is your win/lose ratio.

Finding the Longest Losing Streak (LLS) is simply a matter of going over your trade history to find groups of losing trades clustered together. You are looking for the longest streak of consecutive losing trades, and calculating their combined value. The Largest Losing Trade (LLT) is the largest losing trade incurred over your trade history.



WIN/LOSE RATIO:
“Trades” shows the total number of trades made, which is 92 in the example above. “Longs Won” and “Shorts Won” shows total number of Long (27) and Short (38) winning trades, which if added together (65) and subtracted from the total of 92 trades, shows that there were 27 losing trades. Divide winning trades (65) by losing trades (27) and the win/lose ratio is 2.4:1, or 2.4 winning trades to each losing trade.

RISK/REWARD RATIO:
You can divide the gross profit (total winning trade profit) by the gross loss (total losing trade loss) to calculate the risk/reward ratio. This same value is expressed as the Profit Factor, which in the above example is 1.25, or a risk/reward ratio of 1:1.25. That is, this account earns $1.25 for each $1.00 lost.



LONGEST LOSING STREAK:
In the example above there are 8 losing trades in a row, generating a combined loss of $2,111.33. You would need to examine the entire trade history to find the LLS, but this example clarifies what you are looking for.

LARGEST LOSING TRADE:
The LLT in this example is $994.93 incurred on 2nd October 2014.

Using my example, if you wanted to limit drawdown to 50% of account balance, you would add $994.93 to $2,111.33, for $3,106.26 x 2 = $6,2125.52 capital required.

Trust this helps, but please keep the questions coming.

Cheers 😎

TakeIt
Jan 25 2015 at 16:06
20 posts
Thank you very much for this example. My understanding on LLS and LLT was became better.

BabyPips explained about risk/reward ratio in
https://www.babypips.com/school/undergraduate/senior-year/risk-management/reward-to-risk-ratio.html.
An example that was given is this.



BabyPips explained that although we only win in 50% of trades, that it's mean 1:1 of win/lose ratio, we still in profit at the end because we use 1:3 of risk/reward ratio.

Base on this example, I think risk/reward ratio is more important. So, I think we must give more attention to it.

What do you think?

Attachments:


Gary Sharp myfxpt com
myfxpt
Jan 25 2015 at 21:25
345 posts
Hi TakeIt

Absolutely agree! When I traded Bank Bill Futures back in the 80s, I won just 3 out of 10 trades. My average win trade made around $250, whilst my average losing trade lost $50, so my risk/reward was 1:5, and my profit was around $400 over ten trades.

The biggest problem we all face is to determine the potential risk/reward in advance of making a trade. Some traders use Fibo lines, others use S/R lines, and both provide a good guess. But the only real way to learn about your risk/reward is when you close the trade. Hence, this is why I choose regular account analysis to see how my strategy is performing. If my risk/reward is declining my strategy needs attention...less risk or greater reward.

Really good to see you looking at BabyPips...excellent place for all of us to refresh our knowledge! 😎

TakeIt
Jan 26 2015 at 04:05
20 posts
davidcraigson
Jan 26 2015 at 07:41
67 posts
I like the BabyPips chart, but, honestly, who wins 50%? Though that chart would hold good even at a 30% win ratio, though it would be 7k loss 9k gain. I would still be happy with that. And its probably a much more realistic win ratio.

Bob LLewellyn (ForexAssistant)
Jan 27 2015 at 05:29
465 posts
davidcraigson posted:
I like the BabyPips chart, but, honestly, who wins 50%? Though that chart would hold good even at a 30% win ratio, though it would be 7k loss 9k gain. I would still be happy with that. And its probably a much more realistic win ratio.


Dave, you gotta get out more. I wish I knew how to make Jpegs to put on here to make my point but you will just have to click on the pdf attachment, sorry.

Bob

Attachments:


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