Let me share my view on this -
Part 1 is theoretical where you have not really traded the system -
1. Breakeven point for NF 1 lot is about 2 points so assuming you gain 8 points in your winners you will actually have 6 points and your losers will have 2 points added to them. So your winners should have at least 4 points more than your losers to get a R:R of 1:1, in other words if your average winner is 8 points your average loser should be less than 4 points else its a negative R:R system.
Above is in theory so looks doable but lets see what actually happens-
1. Backtesting of discretionary shows very high success rate and we assume that in real trading also we will get this much success rate. Implementing a discretionary method is a skill which needs systematic elimination of mistakes which takes time so assume a success rate less than 50 % in beginning. For a 40 % success rate system anything more than 2.5 points average loser is a loosing system.
2. Lets also take into account the slippages, the invalid setups you take, typo error, missed trades and many other errors that we will always have.. a system with such a tight R:R doesnt give room for these and in actual trading will be a loosing system.
A system should have good R:R( at least 1:1.5, more the better).. it will give you room for mistakes and still keep you in positive. It should have good frequency(number of average trades in a day for a day trader shud b atleast 1-2).
Scalping is very difficult and needs lots of focus, effort and has little room for mistakes but even if you want to do it then you should learn to hold on to winners i.e you will need to manage your trade actively and when you see your trade has capability to go more than 8 then let it run(easier said than done
) .
Part 1 is theoretical where you have not really traded the system -
1. Breakeven point for NF 1 lot is about 2 points so assuming you gain 8 points in your winners you will actually have 6 points and your losers will have 2 points added to them. So your winners should have at least 4 points more than your losers to get a R:R of 1:1, in other words if your average winner is 8 points your average loser should be less than 4 points else its a negative R:R system.
Above is in theory so looks doable but lets see what actually happens-
1. Backtesting of discretionary shows very high success rate and we assume that in real trading also we will get this much success rate. Implementing a discretionary method is a skill which needs systematic elimination of mistakes which takes time so assume a success rate less than 50 % in beginning. For a 40 % success rate system anything more than 2.5 points average loser is a loosing system.
2. Lets also take into account the slippages, the invalid setups you take, typo error, missed trades and many other errors that we will always have.. a system with such a tight R:R doesnt give room for these and in actual trading will be a loosing system.
A system should have good R:R( at least 1:1.5, more the better).. it will give you room for mistakes and still keep you in positive. It should have good frequency(number of average trades in a day for a day trader shud b atleast 1-2).
Scalping is very difficult and needs lots of focus, effort and has little room for mistakes but even if you want to do it then you should learn to hold on to winners i.e you will need to manage your trade actively and when you see your trade has capability to go more than 8 then let it run(easier said than done
) .
