Reward to Risk Ratio
Now it’s time we discuss the Reward to Risk Ratio or the comparison between the amount of profit and loss. The point is that we always benefit when running this forex trading business so we must be able to measure the magnitude of the opportunity to profit against losses that might occur.
To be able to do this is not young, because we have to practice a lot to hone the ability to determine the “Buy” and “Sell” positions appropriately. And of course by using some trading indicators that we have discussed before 🙂
The ability to determine the Reward to Risk Ratio is very helpful for us to increase the profit we will get later. Because this is our main key in the forex trading business.
So if we are able to determine the opportunity of a trade with a Reward to Risk ratio of 3: 1 assuming the opportunity of profit and loss is 50% : 50% then we will still be able to book profits.For more details, let’s look at the illustration of the following forex trading calculations,
So, when we open a trading position as many as 10 trading positions with the opportunity for profit & loss is 50%: 50% and a Reward to Risk ratio of 3: 1 then we will still be able to get a profit of $ 1000.
This is what we mean in the material of risk management lessons, which one of the materials is never to risk more than 2%. We do this so that we always have the opportunity to get profits in every trading position that we will open next.
Implementing Risk Management is equal to increasing profit opportunities.
Imagine, if at the above trading we never do risk management, which means we risk all capital, what will happen?
In the first position we get a profit of $ 300!
But in the second position we get a loss and if we do not apply risk management and prices go down even further until the capital we risked is reduced to the margin call, this makes us throw away the profit opportunity in the next position, namely the 3rd position, to -5, 7th, and 9th.