The Difference Between RRR Planned And RRR Realized
One of the main focus points in the Edgewonk trading journal is improving trade management behavior and we have included a variety of metrics and features in our trading journal to help traders get a better understanding about how their trade management decisions impact their trading performance.
In this article, we want to explain the differences between the RRR (Reward:Risk Ratio) Planned and the RRR Realized in the Edgewonk trading journal and how it can help you get new insights int your own trading.
This is the RRR all traders know; it measures the initial conditions during the trade entry by comparing the stop loss and take profit distances.
The problem here is that the RRR planned is easy to manipulate and traders who arbitrarily create large RRR figures (by setting targets too far away or using too small stops) have a wrong perception about their trading and run into problems easily when price doesn’t reach their targets or hits their stops too easily.
Never justify a mediocre trade setup with choosing a random, large RRR.
This RRR analyzes the final RRR once the trade has been closed.
When the RRR Realized is larger than the initial RRR Planned it either means that the trader cut his loss ahead of the initial stop loss or that he let his winner run beyond his initial target.
If the RRR Realized is smaller than the initial RRR Planned it says that the trader let his loss run beyond his initial stop or cut his winner ahead of the target.
The RRR Realized is similar to the R-Multiple and it’s just a different way of looking at the final outcome of a trade. However, the RRR Realized cannot turn negative.
Step 2: Trade management analysis
This was just the starting point for trade management analysis and knowing if you have increased or decreased your RRR is not enough information.
With the help of the other trade input data, the Edgewonk trading journal can perform a complex analysis and give you new insights into your trade management behavior. Here are the 3 most important metrics and sections in your Edgewonk trading journal that you should consult:
1. The Trade Management tab
The trade management graph, with the help of the two RRR metrics, analyses your current and your potential performance. If you see that your potential performance is above your current performance, it shows that you are mismanaging your trades (cutting losses too late, taking profits too early) and reducing your performance unnecessarily.
2. Updraw and Drawdown
Those two metrics analyze how close price came to your stop loss (Drawdown) and take profit order (Updraw). The higher the numbers, the closer price came to your orders. Two things to look for are small Drawdown numbers on your winning trades (it means your stops are relatively far away) and high Updraw figures on losing trades (it means price turned ahead of your take profit and then turned into a loss).
3. Avg MAE and Avg MFE
Those two metrics are similar to the Updraw and Drawdown but they measure the absolute distance how much price went in your favor (Avg MFE) and how much price went against you (Avg MAE). If you see high MFE numbers on your losses, it means that you need to look into profit taking more because you might miss profit taking opportunities on your losses.
As you can see, with the help of the RRR metrics and the other features in the Edgewonk trading journal we completely take out the guesswork and Edgewonk shows you exactly where you are doing well, which areas to change and how to adjust at the same time.
Tip: When it comes to making adjustments on your trading approach and your system, only do one change at a time. By only adjusting one parameter, you can observe and analyze the impacts of your change immediately. If you make multiple adjustments, it’s often impossible to see which one is responsible for the new results.