The Beep Boop indicator had a win rate of approximately 48 percent, and even though 48 sounds like a bad win rate in trading, it’s actually not. Because the 48 percent win rate was achieved with a 1.5 to 1 reward risk ratio. And if you do the math, that’s a good profit. In the Trading Rush app, the beep boop indicator made a profit of 2000, and the profit graph was also a lot better than many other trading strategies I have tested on this channel. In this video, we are keeping the trend following rule, but we will break the reward risk ratio rule. We will take the entry signals the same way we took in the last video, but instead of taking a 1.5 times more profit than the risk, we will take 0.5 times more profit than the potential risk. That’s right, we will take less profit than the potential risk, half to be exact. So what do you think will happen? If we break the rules, will we lose money? Watch this. I tested the Beep Boop Trading strategy 100 times with a 0.5 to 1 reward risk ratio, and here’s what happened.

 

First of all, let’s get a few things straight. When you take more profit than risk, you are creating a chance of making more profit, than what you might lose if the trade doesn’t go in your favor. So in case you lose one trade, and then make a profit in the next trade, your total profit will be positive, because your second trade covered the loss of the previous trade, and still had some money left over. Now that’s kind of obvious. But when you use a reward risk ratio higher than 1, lets say 2 to 1, you are actually decreasing your chances of making a profit, because then price has to move twice the distance to reach your profit target, than it has to move to reach your stop loss, and price doesn’t do that every time. So why does everyone recommend using a higher reward to risk ratio? Well, the answer is pretty easy. Even though price doesn’t magically move in your favor every time you take a high reward risk ratio trade, there is one kind of market, where price has a higher chance of moving in your favor even if you have a high reward risk ratio. Is during the trending market.

 

Now let’s say you are completely new to trading. Let’s say you randomly take new trades in the market with a reward risk ratio lower than 1. You don’t have any trading strategy, so when you randomly take trades when the market is moving sideways, you sometimes make a loss because the price goes in the opposite direction, and you make a profit when the price does move in your entry direction. But since profit is always less than your loss, you will have a high chance of making a loss in the long run. In this scenario, where you randomly took trades, because you are new and don’t have a profitable strategy, you win most of the trades when the market was moving sideways, and win less trades when price was moving in one direction.

 

Now lets say, you take more profit than your risk, lets say 2 to 1. Now if the random trades don’t go in your favor, you will lose less money than what you will make when the price does go in your favor. In this scenario, you lose most of the trades during the range market, because the price couldn’t reach your bigger profit target. In the trending market, you win almost same number of random trades as you did with a lower reward risk ratio, but this time, because you were booking double profits, the random trades that were in the direction of the trend, made a lot more profit than the same trades achieved last time with the lower reward risk ratio. If you calculate the total profit of these two scenarios, you will see that the second scenario where reward risk ratio was higher than one, made a profit. Obviously, taking random trades is probably not going to make you a profit in the long run even with a high reward risk ratio. But what a good reward risk ratio can do is stop you from blowing up your account quickly even if you take random trades. And if you use a profitable trading strategy in a trending market, and have enough experience to identify and avoid the sideways market, you can make more money with a higher reward risk ratio.

 

But hold on a minute, what if you are a beginner and can’t always detect a range market easily. What do you do then? According to the theory we discussed in these two scenarios, trade with a lower reward risk ratio has a higher chance of making money in the sideways market. and the only reason it didn’t make money was because the random trading strategy was not taking  the trend direction into consideration. So what if? What if we create a trading strategy, that will follow the trend direction, and will have a lower reward risk ratio like 0.5 to 1, so it will also have a higher chance of making money in the range market.

 

So that’s what I did. Since I already created a profitable trend trading strategy in the beep boop indicator video, I tested the same strategy 100 times with a 0.5 to 1 reward risk ratio. And in the end, it got the highest win rate we have gotten on the Trading Rush Channel ever. In the Trading Rush App, it got a win rate of approximately 71 percent. Now obviously the high win rate is because the win rate goes up if the reward risk ratio goes down. Look at the profit graph and the number of winners and losers. In the Trading Rush App, the Beep Boop trading strategy made a small profit. The account size was 10000, and it made a profit of less than 10 percent. That’s less than 10 percent profit gain, which is pretty bad. If we compare it with the previous results we got in the last beep boop video with a 1.5 to 1 reward risk ratio. The new Beep Boop Trading Strategy gained another 20 percent plus win rate, but couldn’t even make half of the profit it made last time. This time, the strategy only gave 3 losers in a row, and gave 14 winners in a row. Even though we took less profit than the risk, the end result with the beep boop trading strategy was profitable, but not good enough like the result we got with the 1.5 to 1 reward risk ratio. Now remember, I created the Beep Boop indicator to follow the strong trends. Furthermore, the beep boop indicator gives multiple good entry signals in a single trend. These rules played an important role during the backtest, because most trades that were lost last time at the extreme end of the trends, and during the weak range market, were won this time. So if you reduce the reward risk ratio on some other indicator that doesn’t follow the trend direction like the beep boop indicator does, you can have different or bad results. With a 1.5 to 1 reward risk ratio, a lot of you are getting win rates more than 60 percent and up to 80 percent with the beep boop strategy by only taking beep boop entry signals in a trend. Keep it up! If you want to learn more about the beep boop trading strategy, and if you want to get the beep boop indicator for free, check out the previous beep boop indicator video.