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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. #31
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    Quote Originally Posted by Hukam View Post
    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
    Well, I have seen this calculation, though I don't do that calculation, but this is necessary for all the traders I know about this reality, I have spend a lot of time in forex market, so that's why I do that without calculation, and may probably my predictions and analysis give me good results.

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  3. #32
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    scalping has risk and reward that is not balanced. but everything is on our hand that what type of trader we want to be and what sort of trading success we have been expecting for. There is not any shortcut way in the forex that will lead you to the way of professional trading with huge earning. The basic norms of trading in forex is that you need to work hard and do a lots of homework

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  4. #33
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    That's why I am not much satisfied with scalping trading strategy its risk and reward ratio is not balanced at all I also tried many time to use scalping but I am not getting a very good result in trading since couple of months I am doing trading with support and resistance points its looking much better for me and suiting my trading style too

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  5. #34
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    Quote Originally Posted by forexlearner View Post
    That's why I am not much satisfied with scalping trading strategy its risk and reward ratio is not balanced at all I also tried many time to use scalping but I am not getting a very good result in trading since couple of months I am doing trading with support and resistance points its looking much better for me and suiting my trading style too
    Well my friend, the scalping is not the problem, but the adjustments of the plans you have with the scalping. But in all the things you are doing with the scalping system, let your target be more than 15pips, that is how you will really enjoy the rules of good risk to reward ratio. It actually works for every trading systems.

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  6. #35
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    Quote Originally Posted by ngalapreceh View Post
    scalping has risk and reward that is not balanced. but everything is on our hand that what type of trader we want to be and what sort of trading success we have been expecting for. There is not any shortcut way in the forex that will lead you to the way of professional trading with huge earning. The basic norms of trading in forex is that you need to work hard and do a lots of homework
    In my view, if we do scalping on frequent trades and transactions then it is a blind game, because traders mostly become gambler when they do scalping, because they try their luck with quickly open / close trades, but experienced traders do their trades with scalping, but after knowing the range of market.

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  7. #36
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    I am agree with your points most of time we talk about about our risk and reward ratio in this business our risk should be very less than our profit levels as you are saying 1:3 trading system is less risky and it can give us a very good success i always follow less risky trading system like you keep it up

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  8. #37
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    According to me scalping is not a big issue at all we need a strong trading plan for our trading strategy if scalping is very risky then first you have to take less risk in your trading try to take very less risk in scalping and you will able to see good result in your trading I don't think that scalping is a bad trading strategy at all

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  9. #38
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    What a gracious thread in the market, the risk to reward is very powerful to sustain the forex trader. meaning that no trader could have the best without planning for the best in the market, the risk to reward is one of the best that will secure the trading of the trader. This is the real engine of all trading managements.

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  10. #39
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    Quote Originally Posted by silverlady View Post
    What a gracious thread in the market, the risk to reward is very powerful to sustain the forex trader. meaning that no trader could have the best without planning for the best in the market, the risk to reward is one of the best that will secure the trading of the trader. This is the real engine of all trading managements.
    It is certainly very much important for all the traders that they should be able to use the justified risk : reward ratio such that reaching profitable zone becomes easy and possible for the traders. I have tried this myself in my trading that whenever i have used risk : reward ratio of 1:2 or higher i have been able to make more gains and with this even with 50% winning probability making good gains becomes possible.

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  11. #40
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    Quote Originally Posted by Ashviniurs View Post
    It is certainly very much important for all the traders that they should be able to use the justified risk : reward ratio such that reaching profitable zone becomes easy and possible for the traders. I have tried this myself in my trading that whenever i have used risk : reward ratio of 1:2 or higher i have been able to make more gains and with this even with 50% winning probability making good gains becomes possible.
    I think risk to reward ratio by 1: 2 is very good for every traders in forex business , with it can make our balance more growing for more greater , so that is the first rule in making the career in good progress which must applied with discipline

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