Risk Reward doubt

#1
Hi all

Presently I am dong some backtesting. And I keep reading discussions regarding risk reward since I understand it is a very important and keep an eye on it.
Generally when senior traders on TJ discuss RR, is it after you have deducted equivalent points that are gone in form on brokerage, taxes AND SLIPPAGE?
Specifically, while backtesting, I have assumed a certain slippage points, and included brokerage and taxes in my calculations as well. So, for calculating R:R, should I deduct these extras or calculate R:R on actual points?

I do understand that at end of day profit matters and calculation method is not that important, but I want to benchmark my strategy against what senior members here say about R:R. In order to do so, I need to be on same calculation method as them.

Thanks in advance.

Smart_trade, Subhadip, TraderRavi, XRAY please do reply.
 

travi

Well-Known Member
#2
Hi all

Presently I am dong some backtesting. And I keep reading discussions regarding risk reward since I understand it is a very important and keep an eye on it.
Generally when senior traders on TJ discuss RR, is it after you have deducted equivalent points that are gone in form on brokerage, taxes AND SLIPPAGE?
Specifically, while backtesting, I have assumed a certain slippage points, and included brokerage and taxes in my calculations as well. So, for calculating R:R, should I deduct these extras or calculate R:R on actual points?

I do understand that at end of day profit matters and calculation method is not that important, but I want to benchmark my strategy against what senior members here say about R:R. In order to do so, I need to be on same calculation method as them.

Thanks in advance.

Smart_trade, Subhadip, TraderRavi, XRAY please do reply.
I'm none of the above but my 2 cents.

The context of R:R matters bcos all of them have multi trade strategies.
so.
1. If it is in context of scalping, say 10NF pts etc, then make sure all those overheads of cost including stamp duty per contract is in the R:R

2. If you are into swing/positional/Options writing etc where the R itself is huge, say 50-500pts etc or it is multi-lot and the Gross profit is significant,
then the overheads wouldn't matter.

3. Slippage for small R:R matters, for large R:R it generally doesn't.
 
#4
Hi all

Presently I am dong some backtesting. And I keep reading discussions regarding risk reward since I understand it is a very important and keep an eye on it.
Generally when senior traders on TJ discuss RR, is it after you have deducted equivalent points that are gone in form on brokerage, taxes AND SLIPPAGE?
Specifically, while backtesting, I have assumed a certain slippage points, and included brokerage and taxes in my calculations as well. So, for calculating R:R, should I deduct these extras or calculate R:R on actual points?

I do understand that at end of day profit matters and calculation method is not that important, but I want to benchmark my strategy against what senior members here say about R:R. In order to do so, I need to be on same calculation method as them.

Thanks in advance.

Smart_trade, Subhadip, TraderRavi, XRAY please do reply.
Yes,brokerage and other charges are to be deducted while calculating reward and added while calculating the risk.Then only we will get a true picture of how much is the risk including all charges and taxes and how much we have to bet on each trade if we are betting different quantity based on the risk.

For swing and long term trades these charges ar less compared to the move we are trying to catch and for small timeframe trades, these are significant, but they have to be factored in our calculations.

Smart_trade

Smart_trade
 
#6
So, it is safe to assume that while talking of day trading, if someone mentions RR, it is inclusive of everything. Thanks for reply.:)
Yes,brokerage and other charges are to be deducted while calculating reward and added while calculating the risk.Then only we will get a true picture of how much is the risk including all charges and taxes and how much we have to bet on each trade if we are betting different quantity based on the risk.

For swing and long term trades these charges ar less compared to the move we are trying to catch and for small timeframe trades, these are significant, but they have to be factored in our calculations.

Smart_trade

Smart_trade
 

Subhadip

Well-Known Member
#7
Hi all

Presently I am dong some backtesting. And I keep reading discussions regarding risk reward since I understand it is a very important and keep an eye on it.
Generally when senior traders on TJ discuss RR, is it after you have deducted equivalent points that are gone in form on brokerage, taxes AND SLIPPAGE?
Specifically, while backtesting, I have assumed a certain slippage points, and included brokerage and taxes in my calculations as well. So, for calculating R:R, should I deduct these extras or calculate R:R on actual points?

I do understand that at end of day profit matters and calculation method is not that important, but I want to benchmark my strategy against what senior members here say about R:R. In order to do so, I need to be on same calculation method as them.

Thanks in advance.

Smart_trade, Subhadip, TraderRavi, XRAY please do reply.
Yes,brokerage and other charges are to be deducted while calculating reward and added while calculating the risk.Then only we will get a true picture of how much is the risk including all charges and taxes and how much we have to bet on each trade if we are betting different quantity based on the risk.

For swing and long term trades these charges ar less compared to the move we are trying to catch and for small timeframe trades, these are significant, but they have to be factored in our calculations.

Smart_trade

Smart_trade
U have got your answer already...

Best of luck.

Keep whatever be the strategy to be minimal...KISS strategy..

Also follow trend..
 

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