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What is the ratio of risk to reward or profit to loss?

What is the ratio of risk to reward or profit to loss?

The risk-to-reward ratio in transactions is the same as the loss-to-profit ratio that we intend to tell you about in this article. To increase your chances of profitability, you need to trade when you have the ability to make a profit three times greater than the risk. The risk ratio to your reversal is 1 to 3.


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If you give yourself a reward ratio of 3: 1 and only enter the trade in such circumstances, you will have a higher profitability in the long run.

Take the following diagram for example:

What is the ratio of risk to reward or profit to loss?

What is the ratio of risk to reward or profit to loss?

 

In the example above, it is assumed that you are losing 50% of your trades. You see, even if you only won 50% of your trades, you would still make $ 10,000.

Just keep in mind that every time you trade a good risk-reward ratio, you are much more likely to make a profit, even if your winnings are lower.

But…

But this is a big bite, it costs money to set up a reward-to-risk ratio.

On the surface, it makes sense to put a high profit-loss ratio, but think about how it works in real-world trading scenarios.

Suppose you are a scalpel and you only want to risk 3 pips.

Using a 3: 1 reward-to-risk ratio means you should get 9 pips. First of all, the odds will be against you because you have to pay for the spread as well.

If your broker offers a 2 pp spread for EUR / USD, you will have to make 11 pips, in other words, you will have to accept a 4: 1 risk-reward ratio, which is difficult.

Given the EUR / USD conversion rate, which can go up and down 3 pips in a matter of seconds, you will stop faster than you want to say “Aunt John”.

If you want to reduce the volume of your trade, you can widen or open your stop (loss limit) to maintain your desired reward / risk ratio.

Now, if you increase the amount of pips you wanted to risk to 50, you should make 153 pips.

By doing this, you will be able to set the reward-to-risk ratio close to your desired 3: 1. Not too bad, right? By doing this, you reduce the possibility of stopping in market fluctuations because you have more pips to maneuver. And on the other hand, you have the risk ratio to Rivard Menast.

In the real world, profit ratios are not to the detriment of the Qur’anic verse. They should be adjusted depending on the time period, trading space and entry / exit points.

A long-term trade can even have a reward-to-risk ratio of up to 10: 1, while a scalpel (short-term trader) can choose a ratio as small as 0.7: 1.

The important point is that you must consider this ratio when entering the transaction.

How to calculate the risk to risk ratio

 

It is very easy.

All you have to do is calculate your loss limit in pips or dollars first.

Then calculate your profit margin in pipes or dollars.

Risk to Revenue ratio = 1: Stop Loss value / Profit limit value

Example:

We enter the EUR / USD buy transaction at point 1.1225. Our loss limit is at 1,200 and our profit margin is at 1,1275.

Loss limit per pip = 25 pips

Profit limit per pip = 50 pips

Risk to Rivard = 1: 50/25 = 1: 2

As you can see, our risk-to-risk ratio was 1: 2.


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