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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. #2201
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    Quote Originally Posted by Krosneles View Post
    Many traders use to trade near support resistance levels and if market does not brake the level so it goes back and there we can enter the market with small stop losses outside support resistance and have good risk/reward ratio. I think that it is the best way to use risk reward ratio strategies near strong support resistance levels.
    no doubt support and resistance work perfectly but at same time it can give us loss if we do not know about market reaction, market never back from these points always, people think and always try to earn from reversal but whenever it make breakout we can lose big, so i recommend to use some sl into trading it can secure our account and can make us able to earn good here in future

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    Rookie layigold's Avatar
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    As a trader, the first concept you need to learn in order to master risk and money management is the risk to reward ratio of trades. This is simply the ratio of your risk relative to the potential profit of a trade. A wise trader would make the profit potential ratio to be higher than the risk involved, it is important to note that when you take trade with higher risk to reward ratio , you can have less wining trades and still be at break-even. This is one of the hidden recipes of success in forex trading

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  4. #2203
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    Quote Originally Posted by layigold View Post
    As a trader, the first concept you need to learn in order to master risk and money management is the risk to reward ratio of trades. This is simply the ratio of your risk relative to the potential profit of a trade. A wise trader would make the profit potential ratio to be higher than the risk involved,
    With risk reward ratio we can conclude important decisions like where to put the stop loss and what profits to expect out of a trade. Forex is risky and hence risk management and the supportive tools like stop loss and risk reward ratio should be understood and complied by all traders. And for this compliance, it is necessary that traders are disciplined otherwise it dont take much time for anyone to slip during trading.

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    Rookie Silhouette's Avatar
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    Quote Originally Posted by Abhishekwala View Post
    With risk reward ratio we can conclude important decisions like where to put the stop loss and what profits to expect out of a trade. Forex is risky and hence risk management and the supportive tools like stop loss and risk reward ratio should be understood and complied by all traders. And for this compliance, it is necessary that traders are disciplined otherwise it dont take much time for anyone to slip during trading.
    Since risk to reward ratio has become one part with money management, I think it's normal for traders to have them in one package while measuring their risk while calculating how much they want to earn from their trades. Having this knowledge will lead us to a safe trading where safety become our top priority above profitability alone.

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    rules made to be followed, not to be broken

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    Trader Senorita's Avatar
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    The risk to reward ratio is helpful and traders who make plans to risk little and target more still have huge opportunity in this market to make some good profitable trade for themselves. Forex remains that business where the opportunity to earn is big and with every plans to build a strong system, we can achieve that which we have always wanted and would enjoy the right chance of earning with little risk.

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    Rookie Toyen's Avatar
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    Quote Originally Posted by Silhouette View Post
    Since risk to reward ratio has become one part with money management, I think it's normal for traders to have them in one package while measuring their risk while calculating how much they want to earn from their trades. Having this knowledge will lead us to a safe trading where safety become our top priority above profitability alone.
    The risk management is what the risk to reward ratio is working for, not the money management. It is the traders which will personally control their money management directly, but the risk management will be controlled by the plans of the risk of the trader and the profit which the trader is making the risk for. It is just a calculative measures, and it is good that our reward is in the high side.

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  8. #2207
    Rookie Sascha's Avatar
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    Quote Originally Posted by Toyen View Post
    The risk management is what the risk to reward ratio is working for, not the money management. It is the traders which will personally control their money management directly, but the risk management will be controlled by the plans of the risk of the trader and the profit which the trader is making the risk for. It is just a calculative measures, and it is good that our reward is in the high side.
    don't see any differences from both management because i also sees them as one part of management, to help me control my trade and limit myself from doing overtrade. i can honestly says that my emotions sometimes getting out of control during market high volatility and those managements are always there to put my sanity back and follow my strategies again.

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  9. #2208
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    All we should understand is that risk to reward ratio is necessary in making sure we are risking little and targeting much higher in this business. If we are managing risk, it will give us every possible chance to succeed and build a way to make better profits. Forex is risky and if we can manage risk it will help us truly and give us the best advantage to earn profits from forex.

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  10. #2209
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    Quote Originally Posted by Ulthred View Post
    All we should understand is that risk to reward ratio is necessary in making sure we are risking little and targeting much higher in this business. If we are managing risk, it will give us every possible chance to succeed and build a way to make better profits. Forex is risky and if we can manage risk it will help us truly and give us the best advantage to earn profits from forex.
    in simple calculation, we must trade with a balanced ratio and get a double profitability from the amount we use as our risk, amount we can afford to lose. once we apply this rule consistently, we can make a good performance with higher winning amount. however, we must know that risking a little may give big profits with the help of patience, so don't afraid of holding your trades much longer.

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  11. #2210
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    Managing risk should be the very right thing we should learn about and do everything it would take to increase our chances to make profits from this trade. This business is very risky and getting prepared to manage risk will work out for us if we can have a plan to manage this trade. With the best management we will always excel and we should have a plan to minimize risk and see we could grow and achieve profits in this trade.

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