When is a Risk/Reward Ratio good?

[xxx]

Hello,
I have a generall question.
When is a Risk-Reward Ratio good?

 

[tech/a]

Hello,
I have a generall question.
When is a Risk-Reward Ratio good?

When it's positive

 

[cynic]

Hello,
I have a generall question.
When is a Risk-Reward Ratio good?

Risk reward ratio needs to be considered with at least one other metric (ideally win rate) before it can be meaningfully assessed.

 

[pixel]

Hello,
I have a generall question.
When is a Risk-Reward Ratio good?

If your grasp of RRR is a little hazy, read here: http://www.investopedia.com/articles/basics/03/050203.asp

Although it's called Risk-Reward Ratio, implying the former be divided by the latter, the usually quoted values imply the formula being expected/ achieved reward to be divided by the amount at risk. Under that assumption, you aim for a value greater than One, which is another way of saying you expect your reward (profit) to be greater than the risk (capital committed). The greater the ratio, the better the result.

 

[Wysiwyg]

A trend following strategy generally has a higher RRR BUT a lower win rate obviously because you are looking to ride the trend as far as possible though a fewer % actually go on trending when you enter. A mean reversion strategy generally has a lower RRR BUT a higher win rate obviously because your hold time is shorter so the gains are generally smaller.

 

[pixel]

A trend following strategy generally has a higher RRR BUT a lower win rate obviously because you are looking to ride the trend as far as possible though a fewer % actually go on trending when you enter. A mean reversion strategy generally has a lower RRR BUT a higher win rate obviously because your hold time is shorter so the gains are generally smaller.

That's a corollary to Cynic's reply.
We may also add the importance of Stop Loss Discipline: Quite often, results get watered-down by refusal to admit defeat, not selling at the bottom of the initially accepted risk range.

 

[Wysiwyg]

We may also add the importance of Stop Loss Discipline: Quite often, results get watered-down by refusal to admit defeat, not selling at the bottom of the initially accepted risk range.

That's right. No one likes losing but in this game one has to know how to lose to win.

 

[Wysiwyg]

That's a corollary to Cynic's reply.

It could be read incorrectly. I meant trend trade = e.g. 10% risked for +50% reward and nean reversion 10% risked +10% reward. Ratio wise that would be less for trend trade and more for mean revert.

 

[Gringotts Bank]

Hello,
I have a generall question.
When is a Risk-Reward Ratio good?

If you're doing a rotational strategy, then I'm not sure R:R comes into play does it? Trading happens according to ranking only as far as I know.

 

[xxx]

Thank you everyone for your help!