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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. #21
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    Quote Originally Posted by cozard007 View Post
    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.
    Usually, it's calculation if we could gain daily profit and with assumption that we could gain profit without losses at all. Also, the calculation will accumulate the profit without withdrawing any dollars until 6 months. In reality, it's not easy to make it happen especially if we had bigger capital. I ever read that traders ever shared in Excell about calculation of money management but it's hard to realize it in real trading.

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  3. #22
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    Quote Originally Posted by andry777 View Post
    Usually, it's calculation if we could gain daily profit and with assumption that we could gain profit without losses at all. Also, the calculation will accumulate the profit without withdrawing any dollars until 6 months. In reality, it's not easy to make it happen especially if we had bigger capital. I ever read that traders ever shared in Excell about calculation of money management but it's hard to realize it in real trading.
    Forex trading is simple. We just make it complicated. Rather than focus on how much profit we make or risk and reward ratio. We must focus on basic forex trading. Risk and reward ratio is a gambling mentality. Dealing with odds and chances. If you compute or do this kind of things then chance are you are just gambling in forex trading. Using odds and chances to win.

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  4. #23
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    Quote Originally Posted by budado View Post
    Forex trading is simple. We just make it complicated. Rather than focus on how much profit we make or risk and reward ratio. We must focus on basic forex trading. Risk and reward ratio is a gambling mentality. Dealing with odds and chances. If you compute or do this kind of things then chance are you are just gambling in forex trading. Using odds and chances to win.
    Risk to rewards is never a gambling mentality, it is a means of arranging and planning your trading deals in such the manners that will fits you and favour you. If you are such trader with good skills of risk and rewards, it will only help you in limiting the possibility of losing your money to mere mistakes, it will increase your earning as well.

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  5. #24
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    Traders can come to the profit edge only when they can manage to trade with the justified usage of risk : reward ratio of 1:2 and higher such that gains gathered are larger in comparison to the losses made. With increased risk :reward ratio of 1:2 and higher it is possible to become profitable trader even with 50% winning probability.

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  6. #25
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    it is good to trade with pay attention for risk management, and make sure that we can do trading where profit is bigger than risk, and of course, traders need to support it with enough knowledge and ability or everything is nothing without them,
    risk management will make the traders do trading carefully, they understand for how much risk will become theirs and also reward,and as long as we can set them with relevant

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  7. #26
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    Quote Originally Posted by budado View Post
    Forex trading is simple. We just make it complicated. Rather than focus on how much profit we make or risk and reward ratio. We must focus on basic forex trading. Risk and reward ratio is a gambling mentality. Dealing with odds and chances. If you compute or do this kind of things then chance are you are just gambling in forex trading. Using odds and chances to win.
    Brother, forex is not a simple business, if you think that only buying and selling is the business then you are wrong, there are certain things that a trader need to know, he will have to calculate several things before and after the trading, it is purely based on accounting type thing, I am not an account. but need a lot of calculation, it is complicated not easy.

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  8. #27
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    Quote Originally Posted by newentry View Post
    it is good to trade with pay attention for risk management, and make sure that we can do trading where profit is bigger than risk, and of course, traders need to support it with enough knowledge and ability or everything is nothing without them,
    risk management will make the traders do trading carefully, they understand for how much risk will become theirs and also reward,and as long as we can set them with relevant
    Earnings and also damage is definitely a part of foreign currency. Although no matter what comes about don't reduce wish and also continually be self-confident that you step earnings in case you do the job tough. there are many way to make money for us. when we will do everything honestly then we can get huge money and for that we will become rich for that

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  9. #28
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    According to in Risk to reward ratio in Forex trading is the ideal ratio between risk is 1:2, by this we can get double loss and it will be recover in one time profit through this the balance will turn into huge. But if we go some thing wrong there its turn into a sudden loss and that balance will have dis balanced. For this we have to be sure and make strategies before trading risk to reward in ratio in Forex trading.

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  10. #29
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    Quote Originally Posted by ngalapreceh View Post
    Earnings and also damage is definitely a part of foreign currency. Although no matter what comes about don't reduce wish and also continually be self-confident that you step earnings in case you do the job tough. there are many way to make money for us. when we will do everything honestly then we can get huge money and for that we will become rich for that
    Brother, that is not damage, that is only called as loses, this is true that earning and loses are part of this business, that's why I pointed out the stop loss importance in my most of the posts here in this forum and with the discussion of friends on similar topics.

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  11. #30
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    That's very true that our loss and profit both are the part of our business and I think if we are doing trading with proper risk and reward ratio then its not any kind of gambling you should just try to do trade within a strong trading strategy use along with it you have to maintain a very good discipline also in account

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