Quote Originally Posted by buzzman View Post
Good Morning Billy (or afternoon there),

Have you written anything in the past regarding the calculations of the risk/reward ratio. I know there were some issues in the past with revealing your specific methodology but I'm not seeking your specific formula. Being a newbie, I just need some general guidance. The 3:1 ratio is referred to a lot. In my simple mind I think that means 3:1 potential profit to potential loss, or the ratio between profit target and entry and stop and entry. But, when I use the support and resistance lines, the entry points, the stops, etc., I never get even close to the numbers. For example on today's long entry (73.67), the stop is 4.58 below the entry number. The profit target appears to be at resistance (76.37). Therefore the potential profit is 2.70 (76.37-73.67). The result is a potential profit of 2.70 and a potential loss of 4.58. I know that is not correct. I've tried using the robot numbers for potential gain and risk but I still can't get anywhere close to a 3:1.

I realize that this is an elementary trading question for you, but I have found nothing anywhere, internet, books or otherwise that really addresses this issue. All I see are statements like put your stop below yesterday's low, or below some multiple of the ATR, or at some risk level related to your total capital, etc. yada, yada, yada.

At your convenience, I would sincerely appreciate at least some general enlightenment.
Thank you,
Buzz
Buzz,
The 3:1 reward/risk ratio to find the optimal multi-pivot limit entry is totally independent of the optimal (ATR-based) stop used by the robot to manage the risk of its positions.
The multi-pivots methodology 3:1 RR ratio uses the strongest resistance and the strongest support in the first clusters as references. Today’s strongest resistance is the 200 dma (77.72) with a strength of 7 and the strongest support is SS2 (72.33) with a strength of 6.
A long entry at 73.67 gives you (77.72 – 73.67 = ) $4.05 reward to the strongest resistance and (73.67 – 72.33 =) $1.34 risk to the strongest support. This is today’s multi-pivot 3:1 RR ratio for a long entry. I let you do the math for a short entry 3: 1 RR as an exercise.
Billy