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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. #2241
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    Quote Originally Posted by ola4real View Post
    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

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  3. #2242
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    Quote Originally Posted by naeem555 View Post
    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.

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    rules made to be followed, not to be broken

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