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Thread: Risk to reward ratio

  1. #1
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    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
    And in 15 losing trades, the trader will have $200x15=$3000
    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!

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  2. #121
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    Quote Originally Posted by forexlearner View Post
    Low risk trading is better than high risk trading so its important to take very less rich for each trade its very essential to open our position on a good entry point and we have to exit in the market on time too. Our first priority should be good learning rather than making earning in this field. Learning is one the best key to become a professional trader
    yes, I think the risk and reward have a relationship with money management. Proper money management is about saving your account from margin call. It cannot prevent your account from drawdown but it can save your account from margin call with the use of good money management strategy.

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  3. #122
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    Quote Originally Posted by techboy View Post
    The key to successful implementation of good risk reward ratio is to have an strategy that has good entry point,especially if you use an intraday strategy, if we enter somewhere at the middle of the move then it will be a lot harder to achieve a good risk reward ratio, it may look good in paper but most traders struggle to do it, they may opt to have smaller profits because it will be easier to reach than wait for bigger profits.
    [lang=id]thank you very much for feedback,
    yes, several times i got the problem because put the position in the middle of trend, it pushed me to wait for longer before the trend move back and follow the orders, so i got suffering to hold big floating minus, of course need wider stop loss to gave enough the room to sustain the order, and then just got several pips only as profit,
    it was caused by my emotion and did trading with impatience[/lang]

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  4. #123
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    Quote Originally Posted by ngalapreceh View Post
    yes, I think the risk and reward have a relationship with money management. Proper money management is about saving your account from margin call. It cannot prevent your account from drawdown but it can save your account from margin call with the use of good money management strategy.
    Hmm that's true buddy the use of money management and risk management can help us to save our account from margin call and stop out. It will not give us any big profit but in average we can gain consistent profit every time and can become a successful trader. Even if we are making 7 to 8 percent per month then we are surely a successful trader here

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  5. #124
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    Quote Originally Posted by Earnperfect View Post
    Hmm that's true buddy the use of money management and risk management can help us to save our account from margin call and stop out. It will not give us any big profit but in average we can gain consistent profit every time and can become a successful trader. Even if we are making 7 to 8 percent per month then we are surely a successful trader here
    It is even not only for the saving of the account, but the earning of the trader in more trading multiples. This is the best way to have certainty in the market. Looking at all the things that is happening in the market, you will agree with me that the forex market is uncertain for earning. This is why the lower risk will secure you, and the higher reward will keep your profits up.

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  6. #125
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    Quote Originally Posted by ngalapreceh View Post
    yes, I think the risk and reward have a relationship with money management. Proper money management is about saving your account from margin call. It cannot prevent your account from drawdown but it can save your account from margin call with the use of good money management strategy.
    the risk is there, for every deals we take the risk, and traders can not run away from this thing and even need the risk for making profit, and so you are right, a trader need to have good money management, this will help them to trade on the safest way and also boost their trading system to get enough profit

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  7. #126
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    Quote Originally Posted by newentry View Post
    the risk is there, for every deals we take the risk, and traders can not run away from this thing and even need the risk for making profit, and so you are right, a trader need to have good money management, this will help them to trade on the safest way and also boost their trading system to get enough profit
    It si ever present in the market, the risk will make you to earn. Without risk in the market trading, there will never be earning because there will never be a liquidity provider that would want to give you their free money. This is why traders needs all the time to prepare for the risk in the market, this is more understandable.

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  8. #127
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    Quote Originally Posted by Earnperfect View Post
    Hmm that's true buddy the use of money management and risk management can help us to save our account from margin call and stop out. It will not give us any big profit but in average we can gain consistent profit every time and can become a successful trader. Even if we are making 7 to 8 percent per month then we are surely a successful trader here
    important point in achieving forex trading success is how traders can manage their trading accounts with the discipline to apply money management to continue to exist to do forex trading. before trading you must have a backup for future trading purpose. Which is very supportive to forex trading. Who will knowledge about money market, They will win the forex trading.

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  9. #128
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    Quote Originally Posted by newentry View Post
    the risk is there, for every deals we take the risk, and traders can not run away from this thing and even need the risk for making profit, and so you are right, a trader need to have good money management, this will help them to trade on the safest way and also boost their trading system to get enough profit
    That's right. There is no one who can trade without loss at all so it's important to limit the possibility of loss and the amount of loss with risk management. The easiest way is using risk reward ratio, which can be different among traders. Every setting for risk reward ratio has its own good and bad point, it's depending on each trader to choose which setting as comfortable risk reward ratio.

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  10. #129
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    that's right bigger lots means bigger risk for a MC and you don't want to be in negative 40 pips to get closed out if you are using more than 50% of your account. Money management is not strict rules in every strategy is build on forex market. Most of strategy have good MM but also problem when market goes against your opinion.

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  11. #130
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    Quote Originally Posted by ngalapreceh View Post
    that's right bigger lots means bigger risk for a MC and you don't want to be in negative 40 pips to get closed out if you are using more than 50% of your account. Money management is not strict rules in every strategy is build on forex market. Most of strategy have good MM but also problem when market goes against your opinion.
    [lang=id]need to support trading system with good money management, and so wise to set the volume or lots with good then we get enough margin to sustain order and also get the safest way on the market with give us feel comfortable although have to accept loses,
    traders need to think twice before make any decisions[/lang]

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