Risk/Reward Ration-Why you should master the Act.

What is risk and reward ration, and why you should master the Act.

Risk/reward ratio, an estimated measure of th profit potential per amount risked. For example a trader might use a 1:4risk/reward ratio meaning that they are willing to risk $1 to mak $4. Risk and Reward ration potentially give you a hedge to have the best Money Management with huge profits returns with time with very low drawdow.

If you can truly maintain this, you will be making profits with reasonable little risk and it one of the best way to be a profitable trader as it allows you keep making profits at a better ration. First time I started managing funds 20 years ago under a firm, that was where all the emphasis of trading was focus on, once you master the Act, you are a proffesional trader.

I try to keep my risk reward ratio 1:3 and always make sure that I am using stop-loss orders and derivatives such as put options.

It is essential to survive in the market. After all, it is a risky market.

If my strategy ever fails then the risk ratio helps me in my defense. So I always maintain a 1: 2 risk ratio and trade.

LyudmilLukanov posted:
It is essential to survive in the market. After all, it is a risky market.

Managing risk is the most significant yet ignored aspect in trading. I mean most of the traders don't have any risk management coverage. I don't risk more than 1 percent of my funds in one trade. If I start more than 1 trade my highest possible risk percentage is 2%.

Completely agree, it will make sure you are profitable. Its so important to have a positive RR

Yes finding the risk reward and winning percentage of your strategy is important. It gives you more confidence as you know more about your strategy.

It helps traders to stay in the business for long.

The correct approach is always a positive result and good income.

I actually believe that risk reward ration is the cornerstone to successful trading. It is impossible to be 100% right all the time, but even if you are 50% right, your trading may bring you decent profits.

They are quite useful in providing you a better profit in term of consistency, so it is always good to master them.

I keep my risk reward ratio to 1:5. There is no harm for getting 1000 when keeping 200 on risk.

blackChelsea posted:
I keep my risk reward ratio to 1:5. There is no harm for getting 1000 when keeping 200 on risk.

Thats the ideal i think between 1:3-1:5 but you have to have the mentality to deal with the losses as the is around a 55%-60% accuracy id say. What is yours like?

CraigMcG2020 posted:

blackChelsea posted:
I keep my risk reward ratio to 1:5. There is no harm for getting 1000 when keeping 200 on risk.

Thats the ideal i think between 1:3-1:5 but you have to have the mentality to deal with the losses as the is around a 55%-60% accuracy id say. What is yours like?

With a risk reward of 1:3 and a win rate of 55% you would be a excellent trader actually, and is very hard to reach.
You can be very profitable with a RR of 1:1.5 and a win rate of 50%
I think a lot of people have a completly wrong idea of what being profitable is. It is about being consistant in the long run.
A high RR combined with a high win rate is almost impossible. And anybody who is promising these crazy high win rates with crazy high RR is probably bullshitting.

The importantce of risk/reward ration cannot be overrated. It is an open secret that it is impossible to be 100% right about the market, that is why you definetely need to hedge your risks by your profits. In this case even if only 50% of your deals are successful, you will still have profits. That is quite a simple concept but it always works.

@skihav, I agree with you. By correctly assessing the risks in this industry, the traders can get benefits, and they do not lose their money.

Wiljanvh posted:

CraigMcG2020 posted:

blackChelsea posted:
I keep my risk reward ratio to 1:5. There is no harm for getting 1000 when keeping 200 on risk.

Thats the ideal i think between 1:3-1:5 but you have to have the mentality to deal with the losses as the is around a 55%-60% accuracy id say. What is yours like?

With a risk reward of 1:3 and a win rate of 55% you would be a excellent trader actually, and is very hard to reach.
You can be very profitable with a RR of 1:1.5 and a win rate of 50%
I think a lot of people have a completly wrong idea of what being profitable is. It is about being consistant in the long run.
A high RR combined with a high win rate is almost impossible. And anybody who is promising these crazy high win rates with crazy high RR is probably bullshitting.

Yeah completely agree. A sure fire way to know a fake guru is high accuracy and RR. 55% isnt sexy but will make you profitable

For sure. Hate seeing these promises of 95%+ accuracy as you just know it's a scam and that there are some poor saps out there that get drawn in by it.

No one can be right every time. However the risk-reward ratio can be used to make decent profits from the Forex market.