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Learn Risk to Reward Ratio | Forex Trading Basics Hey traders, Planning your every trade, you should know in advance the profit that you are aiming to make and the maximum amount of money you are willing to lose. In this educational article, we will discuss risk reward ratio - the tool that is used to compare your potentials losses and profits. Let's start with an example. Imagine you see a good buying opportunity on EURUSD. You quickly identify a safe entry point, your take profit level and stop loss. From that trade you are aiming to make 100 pips with a maximum allowable loss of 50 pips. To calculate a risk to reward ratio for this trade, you simply should divide a potential gain by a potential loss: R/R ratio = 100 / 50 = 2 In that particular example, risk to reward ratio equals 2 meaning that potential gain outperform a potential loss by 2. Let's take another example. This time, you decide to short USDJPY. From a desirable entry point, you can get 75 pips with a potential loss of 150 pips. Risk to reward ratio for this trade is 75 divided by 150 or 0.5. Such a ratio means that potential loss outperform a potential gain by 2. Risk to reward ratio can be positive or negative. If the ratio is bigger than 1 it is considered to be positive meaning that a potential gain outperforms a potential loss. If the ratio is less than 1, it is called negative so that potential loss is bigger than potential risk. Knowing the average risk to reward ratio for your trades, you can objectively calculate the required win rate for keeping a positive trading performance. With R/R ratio = 0.5 2 winning trades recover 1 losing trade. You need at least 70% win rate to cover losses of your trading. With R/R ratio = 1 1 winning trade, recover 1 losing trade. You need at least 50% win rate to compensate your losses. With R/R ratio = 2 1 winning trade recovers 2 losing trades. You need at least 35% win rate to cover losses of your trading. Trading involves extremely high risk. Risk to reward ratio is a number one risk management tool for limiting your risks. Calculating that and knowing your win rate, you can objectively decide whether a trade that you are planning to take is worth taking. ❤️Please, support my work with like, thank you!❤️
OANDA:XAUUSDEducation
by VasilyTrader
11
I would lie to you that I am very special!This is an event that has spread all over the real and virtual space these days I am better than you, more beautiful than you, smarter than you But the reality is something else But we know the truth! You and I are human, we have our merits and demerits, we all lied, we were all kind, we were both good and bad! we are equal .. With this introduction, I wanted to get here that we in the financial markets are involved with an equal scale of types of risk It means that if I am facing some risks, you are also facing almost the same risks! So, of course, if we are profitable but have a low win rate, or vice versa, we have a high win rate, but we may not be profitable in the long term. Accepting this risk is the most basic step of entering the market. I think money management and risk management are the only keys to success Our learnings about technical and fundamental analysis only play a role in reducing or increasing the risk of our trade!
Education
by HoneyCreateMoney
S&P500 Trading Ideas Ahead of the Fed 0.25 Rate HikeThe S&P500 is looking bearish ahead of the much awaited Fed Interest Rate decision later today. Sellers looks to be in control in anticipation for the rise in the USDX value. On the daily chart, MACD shows slightly overbought signs. Selling opportunities exist at the current price 4055 with tight stop loses around 4076. Should the USDX surge later today. The S&P500 may retrace to the 4025 mark, touching the trendline as indicated by the arrow. On the flip side should the USDX break below the 101.4 - which is unlikely - the buyers will be taking control once more.
VANTAGE:SP500Short
by ciryjuma008
Bull flag on BTC?Hello. Possible bull flag forming on Bitcoin . Target around 24k . First resitance is around 22400-22800 (13th of september high) . I think 25k there will be more selling/profit taking if we even get there. You can see from the chart how 10EMA (blue one) has worked as support 3 times before when Bitcoin started its rise (marked with red arrows) . I believe it will work as a support until the price shows that it doesn't and breaks it (and stays below) . Possible risk reward is pretty good, almost 5 ratio . This is not financial advice. If you do take trades always use stop loss! First mistake novice trades do is not use them and gets their ass burned! Check out my analysis on 12th of january "why I think Bitcoin has bottomed" -Jebu
INDEX:BTCUSDLong
by PalenTrade
Learn Why Do You Need a Stop Loss 🟥 Hey traders, Talking to many struggling traders from different parts of the world, I realized that the majority constantly makes the same mistake: they do not set a stop loss. Asking for the reason why they do that, the common answer is that these traders consider the manual position closing to be safer, implying that if the market goes in the opposite direction, they will be able to much better track the exact moment to cut loss. In this article, we will discuss why it is crucially important to set a stop loss and why it is the number one element of your trading position. First of all, let's discuss what is a stop loss. By a stop loss, we mean a certain price level where we close our trading position in loss. In comparison to a manual closing, the stop loss should be set at the exact moment when the order is executed. Stop loss allows us limiting the risks in case of unfavorable movements. On the chart above, I have illustrated 2 similar negative scenarios: 1 with a stop loss being placed and one without. In the example on the left, stop loss helped to prevent the excessive risk, cutting the loss at the beginning of a bearish wave. With the manual closing, however, traders usually hold the negative positions much longer, praying for a reversal. Holding a losing trade, emotions intervene. Greed and fear usually spoil the reasoning, causing irrational decisions. Following such a strategy, the total loss of the second scenario is 5 times bigger than the total loss with a placed stop loss order. Stop loss defines the point where you become wrong in your predictions. Planning your trade, you should know in advance such a point and cut your loss once it is reached. Never trade without a stop loss. ❤️If you have any questions, please, ask me in the comment section. Please, support my work with like, thank you!❤️
OANDA:XAUUSDEducation
by VasilyTrader
9
DAY TRADING 101: How to Get StartedHello guys! Day trading is a popular way for traders to make money by buying and selling assets within the same trading day. However, before you begin day trading, it's important to understand the basics and develop a solid trading strategy. In this post, we'll cover the basics of day trading and provide some tips on how to get started. First, it's important to understand the different types of securities that you can day trade. Some popular options include stocks, options, futures, and currencies. Each of these securities has its own unique characteristics and requires different strategies, so it's important to choose the one that best fits your goals and risk tolerance. Next, you need to develop a trading plan . Your plan should include your trading strategy, the securities you plan to trade, and your risk management techniques. It's also important to set realistic goals and be prepared to stick to them. Once you have a trading plan in place, you need to practice . You can do this by using a simulation or paper trading account. This will allow you to test your trading strategy and learn from your mistakes before you start risking real money. Another important thing to consider is your risk management . This means understanding the level of risk you're willing to take and setting stop-losses and profit-taking orders to protect your capital. It's also important to maintain a proper risk-reward ratio, which means that the potential profit should be larger than the potential loss. In addition to the above, it's crucial to keep an eye on the market and news , as they can greatly impact your trades, so it's essential to stay updated with the latest news and trends. Finally, keep in mind that day trading requires discipline and patience, so be prepared to put in the time and effort to become a successful trader. To sum it up, day trading can be a great way to make money, but it's important to understand the basics and develop a solid trading strategy. Additionally, you should practice with a simulation or paper trading account, have a proper risk management, stay informed and be prepared to put in the time and effort. Which type of trading do you prefer?
BLACKBULL:US30Education
by m_maia14
1
BEST SHORT Opportunity in the markets!! SQM SHORT!!This chart is up against ATH and MAJOR Overhead Resistance lines extending back to 1996. This stock has been overbought for quite some time and has continued to move higher while markets have traded generally lower. I fully expect this one to play catch up soon. Notice the large Yellow Parallel Trend Channel that price broke out of in March 2022. Price has gone nearly Parabolic since then and is losing steam as it hits overhead resistance. Although not shown here the Price is outside of the Bollinger Bands for >5 MONTHS now indicating that price is > 2 STD away from the mean average MONTHLY Price. This is a Reversion to the MEAN counter trend trade with the 1st Target Price the broken Resistance now acting as support. 2nd Target Price would be the Monthly EMA 39. SHORT Entry = $112.46. SL is confirmation close > $116.78. Target # 1 = $77.64. Target # 2 = $60.43. This is a 8.5:1 Reward:Risk ratio to the 1st Target. Even greater to the 2nd Target. Trade has a >85% Probability of turning out EXACTLY as described!! See my prior posts on similar setups in AMD and SPX.
NYSE:SQMShort
by eganon69
19
📊HOW TO CREATE A TRADING PLAN📊 📖What is a trading plan? A trading plan is a comprehensive decision-making tool for your trading activity. It helps you decide what, when and how much to trade. A trading plan should be your own, personal plan – you could use someone else’s plan as an outline but remember that someone else’s attitude towards risk and available capital could be vastly different to yours. 📚Why do you need a trading plan? You need a trading plan because it can help you make logical trading decisions and define the parameters of your ideal trade. A good trading plan will help you to avoid making emotional decisions in the heat of the moment. ✳️TRADING PLAN CREATION STEPS: 1️⃣Outline your motivation Figuring out your motivation for trading and the time you’re willing to commit is an important step in creating your trading plan. Ask yourself why you want to become a trader and then write down what you want to achieve from trading. 2️⃣Decide how much time you can commit to trading Work out how much time you can commit to your trading activities. Can you trade while you’re at work, or do you have to manage your trades early in the mornings or late at night? If you want to make a lot of trades a day, you’ll need more time. If you’re going long on assets that will mature over a significant period of time – and plan to use stops, limits and alerts to manage your risk – you may not need many hours a day. It's also important to spend enough time preparing yourself for trading, which includes education, practising your strategies and analysing the markets. 3️⃣Define your goals Any trading goal shouldn’t just be a simple statement, it should be specific, measurable, attainable, relevant and time-bound (SMART). For example, ‘I want to increase the value of my entire portfolio by 15% in the next 12 months’. This goal is SMART because the figures are specific, you can measure your success, it’s attainable, it’s about trading, and there’s a time-frame attached to it.You should also decide what type of trader you are. Your trading style should be based on your personality, your attitude to risk, as well as the amount of time you’re willing to commit to trading. 4️⃣Choose a risk-reward ratio Before you start trading, work out how much risk you're prepared to take on – both for individual trades and your trading strategy as a whole. Deciding your risk limit is very important. Market prices are always changing and even the safest financial instruments carry some degree of risk. Some new traders prefer to take on a lower risk to test the waters, while some take on more risk in the hopes of making larger profits – this is completely up to you. It is possible to lose more times than you win and still be consistently profitable. It's all down to risk vs reward. 5️⃣Decide how much capital you have for trading Look at how much money you can afford to dedicate to trading. You should never risk more than you can afford to lose. Trading involves plenty of risk, and you could end up losing all your trading capital (or more, if you are a professional trader). Do the maths before you start and make sure you can afford the maximum potential loss on every trade. If you don't have enough trading capital to start right now, practise trading on a demo account until you do. 6️⃣Start a trading diary For a trading plan to work it needs to be backed up by a trading diary. You should use your trading diary to document your trades as this can help you find out what’s working and what isn’t.You don’t only have to include the technical details, such as the entry and exit points of the trade, but also the rationale behind your trading decisions and emotions. If you deviate from your plan, write down why you did it and what the outcome was. The more detail in your diary, the better. I Hope you guys learned something new today✅ Wish you all Best Of Luck👍 😇And may the odds be always in your favor😇 Do you like this post? Do you want more articles like that?
Education
by ProSignalsFx
4