Optimisations

R:R Ratios & Win Rates

You have started trading and every time you place a trade, you are bogged by the decision of how to express your trade. To a newbie, the idea of insanity is like a dream, go absolutely nuts with the R:R ratio. You have carefully selected a trade. That one trade, the crux of your trading ability, you believe in this view. Hell .. XAUUSD cannot go lower than this! Gold has been flying high in a bull run for years, the fundamentals support it. US Dollar has been losing its dominance as the world reserve currency with the rise of BRICs, the idea of petrodollar losing its dominance.. Inflation is on the rise and Gold is an inflation hedge. You have lived and breathed Gold Price Action, run your multi-timeframe analysis. Analysis so good, you could patent this secret sauce and the process. Now you have run your magic, you have found that level of support that is as strong as a medieval stronghold. The 61.8 Fibonacci retracement has aligned with the price action and you know what else has aligned too? Your stars !! The moat of 100 and 200 simple moving averages is below, you seek confluence of indicators, you say? As a shrewd trader, cut from the cloth of George Soros himself, you prioritise quality over quantity. You don’t take a 100trades a month, you take just a handful of carefully selected trades and now thy time is near, you can almost smell the fine leather of your new G-Wagon intertwined with the mist of the ocean, sunshine and your freedom. Say Goodbye to the 9-5 slavery, the rat race .. They say every time you make a decision, the universe splits. The Many-Worlds Interpretation of quantum mechanics suggests that every time a decision is made or a “quantum event” occurs, the universe “splits” into multiple branches, each representing different outcomes. We are going to paint your quantum outcomes for you. Each outcome representing the universe you shape for yourself ..Quantum Event 1:Your TradingView chart, looks like a thing of beauty, that perfectly drawn Support and Resistance box, the slight and tender touch of the wick upon it, a piece of art, you reminisce to yourself, every artist was an amateur once.. You have entered your position, it’s already running a slight profit, a good omen, price just hovering above support, consolidating above it. Just a matter of time before Gold shoots upwards. Your Stop Loss is tight but a reasonable decision based upon your analysis. Your R:R ratio is 5. You have 3000$ in funds, what’s 500$ to a man of means? Glory is all that matters! If this works out, you stand to almost double your account! If you fail, it’s only a 20% loss versus the potential of a 500% gain! A no-brainer, you say? Who wouldn’t take this trade?Quantum Outcome 1:2300$ in running profit! All the naysayers, fools you say, utter fooools! Nahhh .. just kidding, it’s time to wake up to reality. The 500$ is gone! Poof! As it turns out, that stop loss was too tight! You ran into some profit before the market coming back down and losing 20% and what’s more, Gold has now shot up 1% hitting your profit target. You figure you were right all along but now you deal with the sinking feeling of loss instead of a win. But you quickly spring back up and decide, from now, loosen the Stop Loss a little bit. Hey, I was right about everything else, just underestimated the volatility of the most volatile commodity out there. But hey, this one trade does not decide my future as a trader. Every one makes mistakes, even the greatest traders out there have made mistakes and this loss taught me a valuable lesson. You’re a fucking clown, mate! Where’s the makeup? Put it on. You just clowned yourself and for a fucking guarantee you have not learned shit from this foolish gamble. For you, the markets are an academy and the brokers teach you these valuable lessons over and over again and you pay this tuition fee to them until the 3000$ turn to 1000$ and then you top up a little bit every now and then when you can afford to do so. You repeat this cycle of foolishness over and over again and overtime life catches on, deposits reduce and your endeavour as a trader eventually from a dream reduces to a story you tell at dinner parties where you talk about your 1 win like you were fucking Ed Seykota. This is your quantum outcome.Quantum Event 2:You open TradingView and you see your chart for what it is.. A bunch of BS that makes no sense, but hey, you do it because other market participants follow it and do it. You understand whatever squiggly lines you drew are arbitrary and the fact that it might work is because others are watching it closely and monitoring it as well. That’s it! You also understand that Gold is a highly volatile commodity and past price action is no guarantee of future price movements. You still trust your view that Gold would at least bounce a little from this level and hold a little bit before going wherever it’s supposed to go, in most likelihood eventually up but you understand that it might not happen at this exact moment and short term price movements with Gold can be erratic and sharp. You figure you are not in the investing game, you are not here to ride XAUUSD from current level to 100$ price hike and make tens of thousands of dollars in one go. You don’t need to go aggressive to reach the goals you wish to. You understand the concept of compounding returns and the snowball effect of trading capital rising over time. You think in terms of probabilities and you figure whatever stop loss point you have in your head, you widen it by a wide margin. You are not obsessed with 1:5 or 1:10 risk to reward ratio. You also have learned to manage your greed. You’re here to take a small cut from the market, the probability of which is higher, the emotional turmoil is none. Your headspace is clear. You don’t depend on the outcome of this 1 trade playing out in your favour. Anything can fail and everything can fail. You go in with a simple 1:1 or 1:2 Risk to Reward ratio. You are not concerned about being right, just making money.Quantum Outcome 2:As expected, XAUUSD bounced from the level you bought and consolidated a little and you exited at a nice profit of 200$! Now you saw Gold price rose 10$ but hey, you’re not concerned with that. You understand there are plenty of opportunities in the markets, just like life! Tomorrow would present another opportunity. You are not concerned about perfection, just good enough. You understand your edge very well, with some good old pattern recognition. You screen for another setup, another day, another opportunity. You go about your business in a merry way. You understand that there was no missed profit, you have no FOMO. This is your strategy. A simple one, less stressful one, one that makes sense, one that compounds over time. You play the game at the easy level. You grab the easy money. Just the bounce is enough. You get in and you get out. You understand that 1:3 above R:R opportunities are rare and what looks good in hindsight gets amplified by our innate bias to make profit. You also understand your psychology and your strategy is in line with your psychology. You trade 10-12times a month, high probability setups, your win rate is 8 out of 12 trades, making gross profit of 1600$ a month. You minus your net loss on 4 trades which is 400-600$, leaving you with a net profit 1000-1200$/month. Not bad for a 3000$ account, almost 33%. Your trading capital grows over time and you end the trading year with almost 150,000$ in trading capital! This is your quantum outcome.