Sunday, October 10, 2010

Risk-to-reward Ratio

Risk-to-reward Ratio is a very important ratio for all traders, it is mathematically calculated by dividing the expected profit(reward) to the expected loss(the risk). The optimal Risk-Reward Ratio should be at least 1:2. E.g Entry 1.00 ,Target 1.04, Exit 0.98. Time frame: short time

It is vital to examine your risk-to-reward ratio before making a trade. It's also essential to trade with money you can afford to lose, and to limit the amount of risk you take on each trade. Make sure you can survive a drawdown, and avoid wasting your precious capital on low probability setups. Don't put on trade just to get a rush of excitement. Make sure you have a detailed trading plan and trade the plan setup. and stand aside until you find a setup where you can win. In gamblers parlance. "you've got to know when to fold them." Its impossible to make money without risking it. but there is huge difference between reasonable risk and recklessness. Winning traders know the difference and don't take unnecessary chances.

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