Creating An Edge??? 9/3/18

In the forex market, everyone needs all the edge they can get.  Well, let's discuss the Risk and Reward edge.

I, for one, do not believe in RR concept.  Although the logic behind RR is great,  I see many times already that RR can be out the door if you enter trades in bad market conditions.  You will probably lose trade after trade after trades.  Such black swan event defies RR and thus RR will not help out much.

However, if you like using RR then this is the way I see it.  Use RR during good market condition. When one enters a trade, there are only three outcomes: you profit,  you drawing down, or you lose.  Let's consider a draw down as a lost. You would need a RR of 1:3 only to profit.

And therefore, remember that 3 is the best reward multiplier.   Anything higher than three, the market probably cannot reach your take profit area.    However, I say 2 is the best multiplier because if you subtract the profitable outcome from the losing outcomes, 3 outcomes - 1 profitable = 2 losing outcome.   All you need is actually a 2 multiplier to negate your two losing outcome, if any.

I have seen people using 1.5 as a reward multiplier because 2 might be too far away for market to reach.   If you use 3, then market probably will not hit your take profit either.

Expecting huge rewards above 3 multiplier to negate losses is almost like revenge trading; success is minute and not going to happen. Whatever you use as your Risk Reward multiplier, success with anything above 3 is not impossible but  rare and probably not a good idea.