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    Thread: Using risk:reward, what is the best number and how do we find it?

    1. #1
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      Default Using risk:reward, what is the best number and how do we find it?

      The question is about risk:reward, known as rr in short. This refers to how much we stand to lose or how much we stand to gain on a position. Some people say that they like to use rr 1:2 and some like 1:4, but how do we actually know which number is the best to use? How do we find out the best number? Is it even possible to know?

      Answering this question, and i do know a very good answer, requires extensive knowledge of both trading and mathematics. Several concepts need to be understood to explain this. Use them all here. My challenge is for you to best describe and answer this completely. This is no simple task, remember that.



      Note: The question is already fully explored with many answer.
      http://forum.mt5.com/showthread.php?...1#post12757435
      Last edited by PhantomTrader79; 05-13-2018 at 07:29 AM.

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    3. #31
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      In forex we can not give any surety of good earning.we have no control over the market.we can only analysis the market and can predict the market. So when the market goes on our direction if then we can take good return it will be good for us. I always think minimum 1:2 risk reward is good for trader. If we can make more than 1:2 it will be extra for us and we can make our safe from loss if we can get ore than 1:2 risk : reward ratio. Suppose in a month we trade 10 position in forex. We make 5 trade profit and 5 trade loss. If we get 1:2 risk reward ratio then after 10 trade we can make good earning. Suppose from win a trade we can get 100 pips and if we loss we should sacrifice 50 pips . after wining 5 trade we can make 500 green pips and losing 5 trade we loss 250 pips. In average we make 250 green pips. After making loss and profit 50% we gain 250 greenpips. So we can understand how important 1:2 risk return ration. If we can not get minimum 1:2 risk return ratio I suggest avoid those trade.


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    5. #32
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      The only widely accepted rule for choosing a risk to reward ratio or RR is that such ratio should not be less than 1:1. So a risk to reward ratio of 1:2 is good, while a risk to reward ratio of 1:3 is even better. The high the reward with respect to the risk, the better your chances of survival in the forex market on the long run.

      There is no risk to reward ratio that can be considered to be suitable to all traders. Different traders apply a specific risk to reward ratio according to the forex trading strategy they are using, as well as their forex trading objective. Some strategies give preference to higher number of pips profit, so such strategies will favor higher reward ratio.
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    7. #33
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      Default Re: Using risk:reward, what is the best number and how do we find it?

      Yes it may be difficult to know which of the risk:reward we can make use in the forex trading market expect that we practice some of the numbers maybe on the demo trading account and them decide which one of them is comfortable for business to use and which one stand to give us more profit on a long term.
      When it comes to risk reward I think, the best idea is thinking more about the long term profit than the short term.
      Because sometimes our trading style or trading strategy may not be giving that much of a profit consistent as we wanted, but if we based our trading in a pretty good risk reward we will still have something to rejoice for.

      When we use higher risk reward it's likely we will exercise more patient in the market, because most time it takes a bit of time before our target is hit and sometimes it may never be hit and we will have to act against our RR based on our analysis and then close our order.

      For me I used 1:3 risk reward.


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    9. #34
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      Default Re: Using risk:reward, what is the best number and how do we find it?

      This is totally depend on trader's strategy that what R:R they use for trading. We should keep in mind that not all the traders think in same way. This is really important for a trader to use this setup for trading because without it we can't trade properly and survive in market for long time.
      The Risk:Reward meanings are simply Stop Loss and Take Profit levels. Some traders trading for long term and their levels are very wide depend on the time frame which they use to analyze the charts. On other hand there also many traders who trade for short term and set their levels according to it. The simple R:R is 1:2. Its mean if you set your stop loss at 10 pipes then your take profit should set for 20 pipes from the price where you enter in market.

      On other we can change it according to our strategy because this is not necessary to set a specific levels for trading. We can also trade in market without set any levels when we want to make as much as possible profits from market swings.
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    11. #35
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      Default Re: Using risk:reward, what is the best number and how do we find it?

      Risk to reward ratios are not often understood by Forex traders by Forex traders, the way we apply risk is bad, the best figures would be anything that is above 1:1 meaning whenever you are risking about $2 on any trade, you should always ensure that you will gain a minimum of $4, this is crucial based on the fact that when you are wrong and lose money, it is the basis for which you can recover quickly, but if the risks to reward is lower, you cannot trade and have your account back to whatever position it was before the losses hit the account, the best figure to use is something that varies from one Forex trader to another, there is no recommendation that will work for everyone in this regard.


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    13. #36
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      Default Re: Using risk:reward, what is the best number and how do we find it?

      Every trader in this business trade according to his own strategy and this is normal thing. We can't say that how much a trader should take risk because it is depend on trader's capital, skills and strategy. According to my point of view a trader should take risk according to all these things are never cross the limit. Some traders trading for long term and some trader for short term which mean that their Risk:Reward ratio is different.
      Some traders trade with 1:1 which is very secure way of trading. Some other use 1:2 and some use more. The R:R can be change everytime because it is depend on different things. The best way to find the R:R is to check your capital and then the pair's movement in which you want to trade. I think this is the best way but there could some other ways to find it.


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    15. #37
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      Default Re: Using risk:reward, what is the best number and how do we find it?

      Quote Originally Posted by Alexander Tatsumaki View Post
      Using risk:reward, what is the best number and how do we find it?
      Risk/reward is an account saving trading strategy. Personally i always use 1:2 risk/reward ratio. Sometimes i prefer 1:3 risk/reward ratio. It varies on many things. Such as:
      (a) Lot size.
      (b) Time period.
      (c) Confidence.

      You may think what does it mean by risk/reward ratio 1:2 or 1:3 or 2:1 or 3:1. It's really very easy task to understand. The first one in the ratio is risk amount and second one is reward amount. Suppose, you open a buy trade in EUR/USD at 1.1600 now according to
      1:2 risk/reward ratio strategy your TP will 1.1700 and SL will 1.1550 then
      1:3 risk/reward ratio strategy your TP will 1.1750 and SL will 1.1550 then
      2:1 risk/reward ratio strategy your TP will 1.1650 and SL will 1.1500 then
      3:1 risk/reward ratio strategy your TP will 1.1700 and SL will 1.1450 then

      I will suggest you to choose 1:2 risk/reward ratio for surviving in the market for a long time.


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      Default Re: Using risk:reward, what is the best number and how do we find it?

      Risk reward is a very necessary component in the way we trade forex, when trading, you cannot undermine this very concept because the is what differentiate between those that eventually become professional forex traders and others that keep doing things that don't understand that makes them to remain in one place, we should have a minimum of two to one risk reward as a matter of principle because anything less than this is unacceptable.

      The figure to use for risk reward is mainly determine by the risk management objective of the forex trader, you cannot have a general recommendation that would work for everyone, but common sense has to be used in the determination of what is best.


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      Default Re: Using risk:reward, what is the best number and how do we find it?

      The figures for risk reward differs from one person to another, someone who uses high level risk will definitely go for something like ten percent of his account whenever he wants to trade. Traders use as high as one hundred percent of their trading account because they think they have everything in control, but basically what I feel is that risk has to be controlled and reduced to a minimum level if not we may not have a trading account to use, which is the reason why success has a difficult for many people.

      The recommendations that is given for risk reward is 2% maximum, whenever a Forex trader goes above their limits, there is always a risk involved in trading, we should limit it at all costs by applying minimum leverage.
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