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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. #21
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      The ratio of risk to reward tells us how much we are risking to gain profit. The profit will be measured in terms of initial risk taken.

      For example, If our initial risk is $10 and after closing trade we get a profit of $30 then the risk reward ratio would be 1:3

      Another misconception about the ratio is that traders like to think this ratio in terms of pips rather then the real money. We must have to measure the ration in terms of the real cash risked against the trade.

      The risk reward ratio definitely impacts our profitability. A trading strategy which gives anything above 1:2 RR is a good strategy if it is consistent enough. So we can conclude that RR ratio is a crucial indicator for success in forex trading.
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    5. #22
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      Default

      The question is already fully explored with many answer.

      Please make sure you read the answers above this post and DO NOT POST ANY ANSWER if your answer contain the same or similar answer with any of the above answers. If you do then it will be deleted.


    6. #23
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      You have a trading strategy that has a winning rate of 60%. Then you use a 1: 1 risk reward ratio in every trade you make. For example in a month you make 20 trades with 20 pips stop loss and profit targets. How many pips will you get at the end of the month?

      Chances of winning 60% of 20 times trading = 12 successful trades (8 trading losses)
      (12 successful trades x 20 pips) - (8 trading losses x 20 pips) = 240 pips - 160 pips = 80 pips.

      So, at the end of the month you will get 80 pips profit. But if your strategy has a 60% chance of winning. So, what if the odds of winning are less than 50%? The answer is to increase your risk reward ratio.


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    8. #24
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      I don't have a fixed risk reward ratio like 1:2 or 1:4 because I don't use SL on most of my trades but I do use TP. I think risk reward ratio varies on different type of trading system that we use. A swing or position trader will usually have a lower risk but higher reward because their TP is too wide up to 1,000 pips. While an intraday trader likes the idea of trading with a 1:1 using an strategy with a very high accuracy rate. My risk reward ratio per trade is different depending on the performance of my trade because I let the market run against my position and decide to cut my losses. The important thing to me is the longetivity of my account and have a positive result at the end of the month.


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    10. #25
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      Using risk:reward, what is the best number and how do we find it?
      risk reward is a very important factor when it comes to the Forex trading market, risk reward is just a way of managing our risk and also maximizing our trading profit in the forex trading market. whenever we are trading in the market, the first thing we need to check is how less risky the trade is, for example if our normal lot size is 1 lot size, then we have to reduce our risk and and increase our reward.

      for me i dont think its advisable to be using fix risk/reward, we need to plan our risk reward ration according to how quality the trading opportunity. for me i mostly use 1:3 risk reward, so that whenever i eventually loose a trade, i will still be profitable in a long run


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    12. #26
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      In my own opinion, there is no best risk to reward to reward ratio because it all depends on your trading system and your money management. Having a good risk to reward ratio is not all that important because if your trading system have a low success rate, even if your risk to reward ratio is 1:2 or 1:3, you may still have a net loss. That is why it is very important for a trader to focus more in building a profitable trading system than to focus on the risk to reward ration. Like in my own case, my risk to reward ratio is not fixed, at times I use 1:2, at times I use 1:1.5, it depends on the market condition and volatility and as long as my trading system will always incure more profit than losses, I do have anything to worry about.


    13. #27
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      Risk:reward ratio is a very important aspects of technical analysis and to be more specific risk/money management. As far as I am concerned 1:2 is good enough for any trader who chooses to be objective.
      How do we find it?- A thorough technical analysis will specify the strategy, the time-frame and the potentials in terms of take profit and stop loss.
      The take profit represents the reward while the stop loss the risk. In a case where the expected take profit is 100 pips and the stop loss is 50 pips, then the risk:reward ratio is 1:2 .
      The calculation is quite simple and this is always a very sensitive factor in successful trading


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      Default

      Risk To Reward Ratio Is one of the Important things Which can make us success in the trading with money management and Low risk but we can't trade with random or even fixes Risk to reward Ration But we have to define it based on the Market Situation as The Following :

      1- If we have very strong resistance line after for example 30 pips and we wan to open buy trade From good entry point we can't make our risk to reward ratio more than 1:1 in that case because That Resistance line can Make the price back again and hit our stop loss so if we opened a trade with 25 pips profits and 25 pips stop loss this will be very good in that case .
      2- If we have Strong resistance line after 50 pips and The price is in a good support line we want to open the trade from it to make the stop loss under it we can open buy trade with stop loss 25 pips and take profit 50 pips so in that case we made our risk to reward ratio 1:2 .... ETC .

      So we can't define Fixed or Random Risk to reward Ratio but we have To define it based on the market situation because we have to have flexibility with the dealing with the market while the trading For making better results and for making profits more than our loses by avoiding The hits to our stop loss .


    15. #29
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      Using risk:reward, what is the best number and how do we find it?The ratio of risk to reward can be clearly defined as what we are ready to sacrifice in order to gain a measured quantity usually in monetary terms. For example , a trader with $100 trading account made a buy entry on GBP/USD using $1 per pip lot size hoping to catch 40 pips T/P and S/L at 20 pips .The risk reward ratio here is 2;1 .Now coming to your question,asking for the best ratio number ,may be difficult to ascertain ,why ?Almost all if not all our risk/reward ratios are based on predictions , how accurate or near accurate our predictions turn out will depend on our knowledge in this field and the outcome of market movement .Picking best risk/reward number is like setting unrealistic target which may not see the light of the day. Although ,there is no harm in setting any target here ,if you are able to hit your risk/reward target ,kudos ,if not take heart ,this is Forex market where anything can happen.


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      I think every trader knows that the grammer rule of Forex trading risk reward ratio is 1:2 and we should take risk with 1-2 % and target 2-4% reward but not all traders actually follow such and can select that by judging their trading parameters .

      1. When a trader is having a good experience ,they can have the confidence over the market trend and in such cases they can increase their targets with small risk by using small stoploss ,on the other hand the newbies should increase the stoploss and decrease the targets with trading comparatively small lotsize.

      2.Some group of traders are there who actually don't use the stoploss and for that they are having a total wash of account or equity risk with their small /medium pips target ,such conditions are very much dangerous as market is highly unpredictable and can move at any direction.


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