Risk to reward ratio - Page 225

# 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!

2. Originally Posted by ola4real
Forex traders who will get to be successful will need the proper money and risk management to trade. The risk to reward ratio is the calculation in whom the forex traders will have a balanced risk management in their trading. The lower risk in calculation to the higher reward will give forex traders the needed good results who can make sure that traders are trading correctly and get to be making income and survive all the time too.
we can not get higher reward by lower risk in short term but we can say if we give it time, if we give it attention we can really make some sensible orders, so in trading try to trade well, try to trade with some rules, our rules and our limitations can make us safe and can make us able to earn here, risk controlling is one important thing if we control if we can really make some good orders here

3. Originally Posted by naeem555
we can not get higher reward by lower risk in short term but we can say if we give it time, if we give it attention we can really make some sensible orders, so in trading try to trade well, try to trade with some rules, our rules and our limitations can make us safe and can make us able to earn here, risk controlling is one important thing if we control if we can really make some good orders here
Rules will always be rules. Lesser risk involved will only bring smaller profits, that's the fact. Only time that can give us increased profits by holding the trades longer for days to follow market movement in trend. Trading is teaching us to become a person who must able to think realistically. Although it becomes everyone's dream of making money from market, we must look into ourself if we're capable of making that money safely or not.

4. Risk to reward ratio should be properly ratio and the trader should know how to calculate it to be able to trade with safety and make money easily, the trader that trades with the proper risk reward ratio will be able to survive in the market for long time and will be able to make consistent profits easily and will save his money also safe in the market.

5. Risk-reward ratio is one of the core elements of any trading strategy. Proper risk-reward ratio allows trader to be profitable even if more than half of the trades are losing ones. Many traders fail just because they violate rules of their trading system that impacts the risk-reward ratio. According to the general rule, risk-reward ratio should be at least 1:2, but it also depends on particular strategy. For example, scalpers could trade with relatively low risk-reward ratios like 1:2 or 1:3 due to the high win rate while swing/mid-term traders utilize higher risk-reward ratios such as 1:10 or sometimes even 1:15. Higher risk-reward ratio helps trader to make more mistakes but still be profitable.
There are few ways to analyze risk-reward ratio of the particular strategy. For example, it is possible to figure out the optimal risk-reward ratio using special backtesting tools like Forex Tester - special software allowing traders to check the performance of their strategies through making simulated trades on historical data. As the result of such testing, trader would get the detailed report on main elements of the strategy, such as win rate, risk-reward ratio and average number of losing trades in a row. Traders often underestimate the importance of backtesting using manual testing on demo. Despite it is quite affordable, demo testing has particular disavantages. That is why the best approach would be to combine both demo testing and backtesting to improve the efficiency.

6. Good evening my brother Yes I see that success in trading is not primarily due to capital, but is how to manage it.
For example, if you have \$ 1000 and traded wrong you will lose, but if you have \$ 100 and good trading and entering into transactions is strong, the profit will be good and without loss.

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