Why I mostly ignore Risk:Reward.

Why I mostly ignore Risk:Reward.
Photo by Joel Abraham / Unsplash

For my swing trades, I don't use a TP at all. There's just no reason to limit my upside. I limit my downside with a SL positioned at a point where I'm willing to reverse my trade. Ex: If I'm long, the SL is positioned where I'm confident enough to say I got it wrong and go short.

This is why this website is called "Stop Profit, Take Loss". As I don't view take profit as taking profit. That makes you feel all warm and fuzzy inside when in reality what you're doing is stopping your profits from continuing. You sat there and went "I'm in profit, but gosh darn that's too much profit. I don't want more profit!" and closed the trade. Why?

And a stop loss does the same thing, you feel good about stopping your loss. But this leads a lot of people into closing the trade too early. I know you've done it, we've all done it, your trade hits SL and immediately reverses to hit your TP. What you're really doing is taking the loss, and you should position it as such. The point where you're confident in taking the loss, so you can reverse your position. Don't just take the loss and sit on your hands.

Now not having a TP means there's also no Risk:Reward ratio. But that's fine as I take what the market gives. Sometimes my trade is a negative R:R, other times it's a home run of like 1:10 R:R.

You got to remember both a SL and TP are limiting, and while I'd never say trade without a risk limit (SL), it never strikes me as particularly wise to limit your upside without a clear reason to do so. And you can't limit your downside too early, or you'll just end up losing money by a thousand cuts.