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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. #2231
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    Quote Originally Posted by sniper007 View Post
    It works depending on how we have placed it, some that don't use it correctly, they will end in making mistakes and taking bad decisions. For instance, I see the best realistic risk and reward ratio to be 1:2 any thing more than that is not realistic and often times, it will not be met, whereas leaving the trader with confusion and no gain.
    actually decisions are totally based on us, when we have good orders these comes because of own decisions but if we are losing that thing can make us loser always if we avoid it, if we evaluate our order, if we understand what reasons were and made us able to earn, so we can do better, actually in trading our trading ways and orders matter if we have good one we can easily survive and can earn as well

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  3. #2232
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    Quote Originally Posted by sniper007 View Post
    For instance, I see the best realistic risk and reward ratio to be 1:2 any thing more than that is not realistic and often times, it will not be met, whereas leaving the trader with confusion and no gain.
    The 1:2 is a very great risk to reward ratio in forex. Some can plan for more target but it will take lots of patience to wait for a long term take profits and there are also times the market could nearly reach take profits and reverse back to hit stop loss. I think any risk to reward ratio bigger than the 1:2 is like over stretching it. If we can target double of our risk, then I think it's realistic to gain and we can achieve our goals in ensuring that good trade can be met.

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  4. #2233
    Registered user Toyen's Avatar
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    Quote Originally Posted by naeem555 View Post
    actually decisions are totally based on us, when we have good orders these comes because of own decisions but if we are losing that thing can make us loser always if we avoid it, if we evaluate our order, if we understand what reasons were and made us able to earn, so we can do better, actually in trading our trading ways and orders matter if we have good one we can easily survive and can earn as well
    Trading the market lies with us, the more we know how to work with the market rightly, the more we will have the needed success through it. One of the needed ways to trade the market rightly is for traders to learn to secure the true experience which will be pointing to the right methods to do things. And as for the survival you made mention, the only secret to that is for traders to trade with the proper risk to reward ratio.

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  5. #2234
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    Toyen, no matter what experience we have we have low or high but all time we always try to do best, this is reality but as we are trading on future so anything can happen,we can do on analysis but still market can do opposite for this thing we should do two things: use smaller lot size and use some sl if we do this we can secure account and can trade well, but if we are not doing this then we can lose just, so never be a trader who do not have proper plan how to earn and how to behave in loss situation

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  6. #2235
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    This is so much important, you need to take your time and then understand the right use of the risk and reward for your trading account and then stick to it, you know, such could always help the trader with the right timing they will be needing to close their trades, also keeping the losses on a very lower point and the profits on the increase.

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    Registered user Azis Muslim's Avatar
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    My best risk to reward ratio is 1:3 because it has given me several satisfying trades and little loss to suffer. Every traders who has money and risk management must have set their risk to reward ratio as their first rule to determine how much money they want to make and how much money they can afford to lose, without feeling any stress or guilt. Never extend the losses to get bigger and always give it pressure in less amount so we can get more profits and able to recover our losses easier.

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  8. #2237
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    Azis Muslim, this is worthy when we have proper management and have some good capital as well, most of time we trade on smaller capital and on that situation it won't work, so make sure you can do better just if you have proper management, if you have done good reason based trading, in trading we cannot use management on smaller capital how we can take risk on some part, with very smaller lots we cannot earn and its waste of time also,time have more value in life i think

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    Quote Originally Posted by sniper007 View Post
    This is so much important, you need to take your time and then understand the right use of the risk and reward for your trading account and then stick to it, you know, such could always help the trader with the right timing they will be needing to close their trades, also keeping the losses on a very lower point and the profits on the increase.
    I do not see this as what we have to take our time about, it is just a thing of the use of common sense of the trader. You will first need to know the capacity of your trading strategy, that is what you will use to know the reward you can be gaining through that trading strategy. The risk level will now be based on the weakness percentage of the trading strategy, that is how i do mine, and it is working rightly for me.

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  10. #2239
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    Quote Originally Posted by sniper007 View Post
    This is so much important, you need to take your time and then understand the right use of the risk and reward for your trading account and then stick to it, you know, such could always help the trader with the right timing they will be needing to close their trades, also keeping the losses on a very lower point and the profits on the increase.
    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.

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  11. #2240
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    Risk to reward ratio is one of the discipline, which traders has to put on when trading. Because when there is the risk and reward been used as it should be, then the trader will have a good exit plan all times and not be the sort of trader that takes trades and then get confused on when to close their trades, on the other hand, I think we trader should also know that this risk and reward has to be realistic.

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