Risk to reward ratio

# Thread: Risk to reward ratio

1. ## Risk to reward ratio

The mistake many forex traders make is that, they believe that it is the perfect traders that are successful. But this is No, It is the smart traders that are successful in the market. And to be successful in the forex market, you do not need to have 100% trading strategy, what you need a good trading ideology and management.

RISK MANAGEMENT: Taking the rules of management into consideration, you will realize that you need a good risk-to-reward ratio to have it working for you. And this is why I always have my reward higher than my risk in the market.

For those traders that do not know the meaning of risk-reward ratio.
Risk-reward-ratio: This is the jointed words that was coined from the risk the trader is taking and the reward the trader is taking the risk for.
For example: I entered a trade on EURUSD with stop loss of 20pips and a take profits of 40pips. It shows that I risked 20pips, and the reward I will get is 40pips for risking that 20pips. Thereby the risk to reward ratio on this is 1:2
As simple as the example above is, traders do not apply it in their trading, and this causes much of their failure in the market.

My logic in this: I make sure that the least of my risk-to-reward ratio is 1:2, but I mostly trade with 1:3 mainly.
If a trader traded in the whole month on EURUSD with 1 standard lot and opened 30 trades for the whole month with risk to reward ratio of 1:3(Where 1 is 20 pips and 3 is 60 pips), and a strategy that wins 50%.

Then it means that the these parameters will be observed; Number of trades = 30 trades, Number of won trades= 15 trades, Number of lost trades= 15trdaes, Lot size=1 lot, Take profit in USD= (\$10x60pips)=\$600, Stop loss in USD =(\$10x20pips)=\$200.
This means that in 15 winning trades, the trader will have \$600x15=\$9000
The resulting profits will be \$9000-\$3000= \$6000 for that month.

This may look very simple, but it is the secret of the traders that has real trading success in the market. And it proved to you that you should rather work on the risk and reward you place with your trading plan , rather than blaming the effectiveness of your trading strategy. HAPPY TRADING!

3. What a great thread my friend I am agree with your points most of time we talk about about our risk and reward ratio in this business our risk should be very less than our profit levels as you are saying 1:3 trading system is less risky and it can give us a very good success i always follow less risky trading system like you keep it up

4. Originally Posted by Earnperfect
What a great thread my friend I am agree with your points most of time we talk about about our risk and reward ratio in this business our risk should be very less than our profit levels as you are saying 1:3 trading system is less risky and it can give us a very good success i always follow less risky trading system like you keep it up
Having a risk to reward ratio of 1:3 is very good, but some traders might still increase the reward they want on this regard, so that they will have better success in the market. I am just saying that 1:3 is very good, but it is never the limit the trader will go, but this will depend on the trading system he is using.

5. you are right sir if we have a trading strategy like this then for sure we are following a good trading system because 1:3 and even 1:4 ratio is an effective trading system sign we have to focus on bigger reward and have to set a low risk in trading this type of trading system always give much beneficial to a trader

6. Originally Posted by Khimi234
you are right sir if we have a trading strategy like this then for sure we are following a good trading system because 1:3 and even 1:4 ratio is an effective trading system sign we have to focus on bigger reward and have to set a low risk in trading this type of trading system always give much beneficial to a trader
It is very benefitial, because in the case of the 1:4 risk to reward ratio, the traders will one and be able to accommodate losses at the next 4 times, this means that you will always have power more than the losing sides in the market. And if you have a trading system that can boast of 75% winning, then you are super hero in the market.

7. Originally Posted by cozard007
you need a good trading ideology and management.
I think the rigth reason trader who get the trading idea is the good psychology. You must understand that trading is metally business. Mentally business means that trading must be so dependent on the mental condition. Many trading setup and trading strategy result small gain

8. Originally Posted by cozard007
It is very benefitial, because in the case of the 1:4 risk to reward ratio, the traders will one and be able to accommodate losses at the next 4 times, this means that you will always have power more than the losing sides in the market. And if you have a trading system that can boast of 75% winning, then you are super hero in the market.
But in my opinion the ideal ratio between risk and reward is 1:2, so when get the double loss, will be recover in one time profit, its will make balance will grow more big and big. or when there are something wrong with the strategies then its not make the balance will blown as suddenly

9. it is always good to know what the risk to reward ration means to you because if you do not know it then you will not be in the right trading position to make money from this dynamic Forex market so you need to know what you are doing.

10. Originally Posted by cowek ireng
But in my opinion the ideal ratio between risk and reward is 1:2, so when get the double loss, will be recover in one time profit, its will make balance will grow more big and big. or when there are something wrong with the strategies then its not make the balance will blown as suddenly
You are right about your concern, the risk to reward of about 1:2 is a very good one, but the traders should not misuse it., if you do not have a good trading strategy, then it might still affect you. The best thing that could help trader is to have a trading strategy that will still make nothing less than 70% winning reruns.

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