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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. #11
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      Risk to reward ratio is a measurement of how healthy your trade is set. This concept is no longer foreign in the ears of traders. The concept is before you trade you should already have a calculation of your risk level and also your profit level.

      Risk to reward ratio is expressed in:

      1 risk : 2 reward
      Or 20 pips SL : 40 pips TP
      Or 1% risk : 2% reward
      Or shortened as 2 R


      And the way you calculate it is by diviiding the reward with the risk so:
      2 / 1 = 2


      Generally speaking, if your profit level is smaller than your risk level then this is not healthy because a series of losing trades might eliminate all the profit that you already accumulated so far.


      However, a high profit level and low risk level is not necessarily good because of several things:
      1. You donít know how far the price will go into the direction of your profit.
      2. You will encounter losses during your trading career.
      3. Big market movement donít happen too often.


      Try to think what will happen if during 100 trades you only get 20% of them with big pips?


      So, risk to reward ratio (simply called RR) is a good measure of your profitability level. Generally, people prefer a 2R or 3R which means you always plan to get 3 times the amount you risked per each trade this way you will still survive even if you enter a losing streak.


      Risk to reward ratio is closely related to money management so itís important to put consideration into the bigger picture of the overall strategy that you use.


      Also RR can be used as a filter to pick a trade because when you do your analysis you already have a rough guess on where the price might go so if you put 3R and you see that it is not possible for the price to move that much then you donít take the trade. This way you only pic the trade that has higher probability to happen.


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    5. #12
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      Default

      the purpose of risk reward is not for to achieve a big target but for survive i think and profit will following by itself
      oke lets do i give a simple example about risk reward.

      Risk reward 1:2 it is mean targets more greater twice than risk, we have 3 trades in here and the example like this is 2 trades has loss so 1 trade win it's enough to cover your loss that is risk reward 1:2.

      Simple example:
      if we have capital $100 risk 10% ($10) divide 2 its mean 5% per trade and use risk reward 1:2.
      if only one trades so lot size will be used is 0.05 SL is 100 pips (-$5 ) and target is 200 pips (+$10 )

      the explanation is if 2 times you are loss its mean you loss is -$10 and then for 3rd win it's mean all your loss earlier has been recovery.
      The point is not about profit most preferred, but it is the risk measurement that most takes precedence

      i think is like that
      you can change it and make your rules own


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    7. #13
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      Risk reward means the amount of loss versus gain that you are expecting from each trade many people don't even understand this concept very well because it is the reason that losses is so rampant in the market, many of us are just trading based on luck and lack of proper understanding. If you have $100 in your account and you are risking 2% for every trade that you enter, it means that if things go wrong, you will have to lose just $2 while you would gain four dollars if the price goes according to the plans you have, the above assumption is on a 2:1 risk reward, which says that for every loss that happens twice, you will be needing just one profitable trade to come back to break even. There are people with much higher RR it all depends on the strategy and what each individual trader considers as appropriate there is no hard and fast rule about this.


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    9. #14
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      Risks rewards varies from one person to another and there are many people that takes this for granted, unfortunately the lack of knowledge is what is causing them to be losing consistently which is very sad because this kind of thing can actually be avoided. If you have just $50 to trade, there is no need to open a position that is as high as 0.5 lot to trade, that means you have a bad risk management style, the maximum position that you can open is 0.10 so that your risk exposure will be very minimal and also target something that when you gain you will have times two of what you have risked in the trade, it is always better to have a minimum of 1:2 although some people advocate that 1:1 Rr is fine, there is different tastes for various categories of people, just pick what works for you.


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      Risk reward is a percentage of the account balance you have which you have decided to put in the market in order to gain a certain amount of money, this is actually higher for some people although this is motivated by greed and the need to make fast cash from the market.

      Some people have a risk reward that is lower in proportion to what they are willing to get as profits, meaning for instance when they risk about $10 in the market, what they are expecting in return will be just $5. That is the most unwise decision and money management that anybody should be engaged in, that means you don't understand the market very well.
      Our profit is suppose to exceed our risk which means we need to be cautious about our money management style, trading is a game that requires plenty of patience.


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      Risk to reward ratio is a good way for a trader to plan the trade because the forex market is unpredictable and we can't avoid loss then it's better to aim for big reward and make loss small. This is because we can not completely eliminate the loss from our career so we must aim for bigger reward and smaller loss. I think 1:2 is good for big time frame but for small time frame then we must aim high to follow the move from big time frame so the risk reward can be 1:5.


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      A good trader must always have small loss (cut loss short) and big profit (let winners run).
      This is the best advice from many professional traders that any new trader must follow because they have a lot of experience so their advice is very good for us.
      I prefer the risk to reward ratio of 1:1 because it is easier to achieve and I mostly win in my trade so from 10 trades I will win around 7 of them.
      That is why I don't aim high. There is a lot of ways to make money from forex not just 1.


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    17. #18
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      If there is something that is said to be unavoidable in the forex business, it is losses, how do you prepare for this scenario, it is by ty proper application of risks management which means you understand your risk reward ratio very well, it is often advisable for us to have a higher rr as against a lower one, when your previous loss cannot be easily covered by the profit that you make in the market, it means there is something wrong with the way you have been approaching thia concept and a change is needed.

      Risk to reward means you are willing to part with a certain percentage of your account for every position that is executed so that you won't be in a disadvantage in case the market has moved against you several times. It is a caution sign on the road that there is danger ahead that you need to watch out for by stepping down your speed.


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    19. #19
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      Risk reward ratio in trading is one aspect that every trader must fully understand and utilize, because this is actually necessary to be a successful trader in the long run, there are ways to implement good risk reward ratio but in the most general term, it is the the ratio between your potential loss as against your potential profits, just an example if you place a stop loss of 10 pips and your take profit is 10, your ratio is 1:1, 1:2 is 10 pips stop loss and 20 pips take profit, and so on, although we cannot achieve those ratio all the time but at least you are near to your target. That is why traders that uses better or high risk reward ratio are most likely to succeed in the long run because their is no way that the market can harm their account because the loses can be smaller most of the time. Unfortunately this is not the case to most traders because a lot of traders do the opposite which is huge stop loss with only small take profits, which is good at the early going of their trading but will surely burn their account soon, that is guaranteed. If only traders learn to follow proper procedures and develop a trading strategy that adheres to better risk reward ratio then for sure they can be in a better position in becoming a successful trader soon and probably for the rest of their life.


    20. #20
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      †What is risk to reward ratio and how it impacts our profitability?
      The risk reward ratio refers to the proportion of the risk one is willing to take compared to the potential profit expected from any particular trade, often expressed in figures, example, a risk reward ratio of 1:4 meaning that the expected profit is four times greater than the risk taken.

      ‎The way this impacts on your trading is the amount of focus it gives you, allowing you know ahead of time what you'll lose if the trade goes against you, and how much you'd gain if the trade goes in your favour. It also help your money management plan.

      When applied to trading, the risk is factored into the number of pips determined as the stop loss while the reward is factored into the target take profit point.


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