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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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    Quote Originally Posted by cozard007 View Post
    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.
    percentage of risk in trading smaller then this will make a lot more traders would feel more comfortable in their trade they should compare the risks that are too large to use in their trade because somehow in this trade must strive to make ourselves to be much better in this trade with risk management we use only a maximum of 5% in the trade that will be much safer

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    Quote Originally Posted by COMANG View Post
    percentage of risk in trading smaller then this will make a lot more traders would feel more comfortable in their trade they should compare the risks that are too large to use in their trade because somehow in this trade must strive to make ourselves to be much better in this trade with risk management we use only a maximum of 5% in the trade that will be much safer
    You are very correct sir, the ways of trading is mainly about the planning and management of the forex trader in handling what he is doing in the market. If you actually risk 5% of what you have, then you will still have 20 straight times to risk all you money before you lose everything, this is a good idea, and it will work with good risk and rewards ratio.

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  4. #13
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    my dear friend you are right i am agree with you and i think 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.

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    Registered user snnaky's Avatar
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    [lang=ar]Hello everyone
    It is good to to discuss important issue is the risk management
    I agree in a lot of words, but always differed with it must be twice the profit stop loss
    But the plan must be based on the technical levels of subsidies and resistors, not digital levels
    For it is often the stop loss is broken because it was on the basis of digital has no meaning[/lang]

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    Quote Originally Posted by snnaky View Post
    [lang=ar]Hello everyone
    It is good to to discuss important issue is the risk management
    I agree in a lot of words, but always differed with it must be twice the profit stop loss
    But the plan must be based on the technical levels of subsidies and resistors, not digital levels
    For it is often the stop loss is broken because it was on the basis of digital has no meaning[/lang]
    As you can see above, this is a very simple rules, but traders do not follow it, if you can take your time to have your calculative trading means in the market, this will be added to the strength you have in the market, and this will be a flawless victory for you. No matter the analysis you are using, this always applies.

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    Quote Originally Posted by lala786 View Post
    my dear friend you are right i am agree with you and i think 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.
    I think it's depending on your money management and capability in making analysis. And risk reward 1:2 has good and bad point, it is back to you who used it. With risk reward 1:2 so it's closer to hit on SL than TP but if the percentage of profit is same or more than loss so it is still profit. But bad point is harder to hit on SL than TP so it will need better open position and it means better analysis.

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    Rookie rinaji's Avatar
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    Good explanation of risk to reward ratio. This is a very crucial factor in forex trading. Risk to reward ratio is the key to bcome profitable trader and success in forex trading. I also always use 1: 2 risk to reward ratio. Or even 1: 3 or 1: 4 and so on. In essence, I always take a lower risk than reward. Thank you for making a useful thread about the risk to reward ratio and complete with the calculation.

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    If you lose, be patient. If you win, stay humble

  9. #18
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    Quote Originally Posted by rinaji View Post
    Good explanation of risk to reward ratio. This is a very crucial factor in forex trading. Risk to reward ratio is the key to bcome profitable trader and success in forex trading. I also always use 1: 2 risk to reward ratio. Or even 1: 3 or 1: 4 and so on. In essence, I always take a lower risk than reward. Thank you for making a useful thread about the risk to reward ratio and complete with the calculation.
    That is the best way to trade the market sir, if you can lower the risk and increase the reward, then you have nothing to fear about. But be mindful of how the ratio it, the higher the ratio of the reward you are taking than the risk, the better the result you will get. In this, you will take forex trading as if it is nothing.

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    Registered user Hukam's Avatar
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    Yes that's a very good thread if we will do trade with proper risk and reward ratio system then there is nothing to worry about our trading because if we have a good trading strategy within a good risk and reward ratio system then most of time we will win our trades and will able to make money consistently in forex market

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  11. #20
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    Quote Originally Posted by Hukam View Post
    Yes that's a very good thread if we will do trade with proper risk and reward ratio system then there is nothing to worry about our trading because if we have a good trading strategy within a good risk and reward ratio system then most of time we will win our trades and will able to make money consistently in forex market
    Thanks for the comment, I believe that forex traders are blinded to many facts in the market, that is why I love to share a thing like this. I made an analysis based on my trading strategy for 6 months with a risk to reward ratio of 1:3, with a capital f $100, could you believe that I am calculation over $50,000 in just 6 months? This is the beauty of god management.

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