The Best Reward:Risk Ratio? What You Need To Know!
ฝัง
- เผยแพร่เมื่อ 24 ก.ย. 2024
- Let me get it out of the way: the winrate in trading it completely irrelevant on its own. Many traders put way too much emphasis on the winrate and do not understand that a winrate does not tell you anything about the quality of a system or a trader.
You can lose money with a 80% or even with a 90% winrate if your few losers are so big that they wipe out your winners. On the other hand, you can have a profitable system even with a winrate of 50%, 40% or onl 30% if you are good at letting winners run and cutting losses short.
It all comes down to your reward risk ratio.
The reward to risk ratio (RRR, or reward risk ratio) is maybe the most important metric in trading and a trader who understands the RRR can improve his chances of becoming profitable.
The Basics - Reward Risk Ratio 101
Basically, the reward risk ratio measures the distance from your entry to your stop loss and your take profit order and then compares the two distances (the video at the end shows that).
Step 1: calculating the RRR
Let’s say the distance between your entry and stop loss is 50 points and the distance between the entry and your take profit is 100 points .
Then the reward risk ratio is 2:1 because 100/50 = 2.
Step 2: Minimum Winrate
When you know the reward:risk ratio for your trade, you can easily calculate the minimum required winrate (see formula below).
Why is this important? Because if you take trades that have a small RRR you will lose money over the long term, even if you think you find good trades.
Minimum Winrate Formula
Minimum Winrate = 1 / (1 + Reward:Risk)
Example 1: If you enter a trade with a 1:1 reward:risk ratio, your overall winrate has to be greater than 50% to be a profitable trader:
1 / (1+1) = 0.5 = 50%
* no investment advice - informational and entertainment purposes only *
Do you like my free TH-cam videos? Then you will love the Tradecademy! In the Tradecademy, you find 80 brand-new and never-seen-before trading videos in a completely new trading course. Plus, you join a private discord community, live trading webinars and you can interact with me directly.
New: Tracademy - online trading academy
► tradeciety.com...
Our weekly trading newsletter:
► tradeciety.com...
Our trading journal:
► edgewonk.com/
Trading podcast:
► tradeciety.com...
####
Risk Disclaimer:
tradeciety.com...
Any and all liability for risks resulting from investment transactions or other asset dispositions carried out by the customer based on information received or market analysis is expressly excluded by Quantum Trade Solutions GmbH. All the information made available here is generally provided to serve as an example only, without obligation and without specific recommendations for action. It does not constitute and cannot replace investment advice. We, therefore, recommend that you contact your personal financial advisor before carrying out specific transactions and investments.
In view of the high risks, you should only carry out such transactions if you understand the nature of the contracts (and contractual relationships) you are entering into and if you are able to fully assess the extent of your risk potential. Trading with futures, options, forex, CFDs, stocks, cryptocurrencies and similar financial instruments is not suitable for many people. You should carefully consider whether trading is appropriate for you based on your experience, your objectives, your financial situation and other relevant circumstances.
Information and Opinions: Information on this site is provided solely for informational or general educational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or to provide investment advice. The opinions and analyses included herein are based on sources believed to be reliable, but no representation or warranty, express or implied is made as to their accuracy, completeness, timeliness, or correctness. All information contained herein should be verified independently.
Results: Past performance is not necessarily indicative of future results. Investment information may not be appropriate for all investors. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
#forex #trading #technicalanalysis
Do you like my free TH-cam videos? Then you will love the Tradecademy! My course summarizes 16+ years of trading experience in a few hours.
And you receive support from your mentor (me!) 7 days a week in our private chatroom:
► tradeciety.com/academy/
This is the best vid on RR ive seen. Clear explanation.
Best breakdown iv seen online, completely to the point and no waffling on.
I have to agree with you!
Nice video. I like how it was summed up. There is no best risk to reward and don’t let anyone tell u you
can’t be profitable with your R.R ratio. Adding on, Mathematically if you have a system that is able to give you 60% of the time 1:1 Risk and Reward ratio you will be profitable. Do the maths you will realise it. 👍
Exactly :)
After watching more than 2 dozen videos on RR Ratio this is the most informative and balanced video exactly how an educative video is supposed to be showing you a complete spectrum of the subject. 👍🏻
That is awesome. Thanks for the great feedback
InstaBlaster
As the reward/risk ratio increases the winning rate decreases and vice versa. As the reward/risk ratio increase the more the psychological/emotional cost increases.
Well said. i will say, dont look at these statistics while trading, and focus on chart pattern, without caring about the R/R, BUT R/R greater than 1:1 is a MUST.
Hi I started making models of the trading account growths ....... I can do also very flexible models with the changing risk and RRR for the individual trades
Two videos are 50 seconds long and one is 2:50
th-cam.com/video/YadnJ501ahc/w-d-xo.html
th-cam.com/video/oIfTxDuKbO0/w-d-xo.html
th-cam.com/video/cmZA4HyH6Ew/w-d-xo.html
Don’t look after the trade. Go living your dream
Loving the examples you give, great work.
Bro excellent video....Bravo....one of the best videos online hands down....i have been struggling with letting my winners win and i will watch this everyday until i stop lol
Thats right. Thats correct. Thank you for sharing RRR. You did a good presentation and clarity on RRR.
Real talk.. love your video. I have money and trade management down for the last 9 years.. always made 60% to 120% in like 9 months or less using 3 to 1. I revamped ,y exits for the last 3 years understanding things more i started taking 1 to 1 profit.. I started making over 250% a in the same 9 months or lest...So i do agree with u, u just need to know what kind of trader u are
Can i get your number?
There is middel path one i use,I Dont have target i let market gets me out,and becase of that i let winners run.i had my best trade was 36:1 and i had 1:1 and anything in between. here is good tekst - “One common adage on this subject that is completely wrongheaded is: you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.” - William Eckhardt
Apparently the real issue is missed here: Probability. Take the RRR that has a trade with a high probability. In a high probability trade RRR doesn’t really matter that much.
Thank you for this video. I'm just learning about trading & I'm developing my strategy. I would very much appreciate more videos about the maths involved in developing a winning strategy & their relationships to each other - how changing one element affects the others. Thank you for sharing your experience & knowledge in your videos!!
Thanks man ❤
You are a blessing for retail traders 👍
awesome, thank you very much. very clear and straightforward!
'Greedy pigs get slaughtered " NYSE.Excellent thanks !
The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance or for the get-rich-quick adventure. The will die poor and loose every penny.
Good breakdown. Thanks Rolf!
Thanks, very clear explaination!
You information is great man 🙂... I almost skipped the video because...
Same
Please talk about setting risk/reward targets in relation to market structure.
First RRR video I really understand fully!
Great Video!
Thanks!
Gonna test out the 1:3 Risk Reward ratio. Long term it fits my preference of not needing a high win percentage.
Thank you so much for this video. Very helpful, I learned a lot. ✨
50% winning ratio 1 :1 is not break even. If you trade 20 days in a month you lose 10 and win 10. What about the brokerage of the 20 days
How many you win or lose is not important. But most important is how much you make money when you are right, and how much you lose when you are wrong...
Dumb thing to say
Great explanation. Much thanks.
So nice thanks sir
this help me alot i was struggling with risk reward
I would like to request a video on just purely price action and its psychology. And make some entry or entries with RRR. Just use H1 for entry and H4 for trend and other analysis good for the 24 hour cycle of the market. Thank you.
This helps alot thanks for the video🤗
Sorry, but the only correct approach is to do backtesting. Do 100 trades, put the maximum possible win rate for each trade into an excel file and then create a small macro that calculates the optimal risk reward ratio with the highest accumulated profit. For some strategies a small RRR will end up in huge profit while the same RRR for other strategies are gonna end up in a huge loss.
This is 100% the way to go
Good Explanation, but how to determine the win rate? Please explain. And if we incorporate the win rate probability (WRP)with a loose rate probability (LRP), the reward risk ratio would be calculated as Reward*WRP/RisK*LRP probability. But how to know your RRP and WRP. Please advise thanks
Can you explain how this works with option contracts
martingale
Dont forget your fees: with funding fees on leverage and extra fees for stop-market orders you may need to reconsider your true break-even, maybe throw in some slippage for times when your stop doesnt get the best fill
all that stuff is why i trade forex. just the spread and/or commission if you have that type of acount
This is everything I needed to know
Does that mean you're a set and forget trader
Love the video!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Thumbs up and subscribed bro!
Awesome thank you!
Best class ever heard
thank you this is very well explained. this information is gold
thanks
Thank you so much!
Good morning. What do you consider a good expectancy? Risking 1% per trade
Thanks for your effort...
You have explained this very clearly.
Check out these videos - 1 min each - it explains the Money management and Risk Reward ..... th-cam.com/video/8Y6Iq_PEtpw/w-d-xo.html th-cam.com/video/YadnJ501ahc/w-d-xo.html th-cam.com/video/0M-xOX1rooU/w-d-xo.html
great video. very well done.
thanks bro. big help!
Which is the risk per trade do you use?
good explanation
can you correlate reward to risk with desired percentage of your account to use per trade?
Thanx for the video
Spread also has a significance no? Higher RRR means you have to hold on longer for potential win and taking longer time between wins, right?
it could but that should be factored into your trading and only trade liquid instruments at liquid times of day and that problem takes care of itself
Here you can see the comparison of four different Risk Reward ratios 1:1.5 1:2 1:2.5 1:3 over 100 trades th-cam.com/video/0M-xOX1rooU/w-d-xo.html
What is best to take profit which i have set before entering the trade or keep winnings run
Move your stop loss up or place at your target
Great Video!!!
REally good explain .1:4 best .I will try to make profit 1:4 RRR
Glad to hear it, and thanks for leaving a comment!
what is your win rate
I find that 1.5:1 to 2.5:1 works best for me
good for you
thank you!
very nice lesson keep going
As long as you keep leaving comments, I will make new videos ;)
This description is, well, confusing. The reason is that he talks about reward/risk vs. win% and that is misleading. You need to consider first what it takes to break-even and then figure out what you need to do to exceed break-even. Specifically, to break-even means that the #wins * average reward = #losses * average loss. Then we see that the ratio of #wins:#losses = average loss : average reward. Simple algebra. Now equate average loss to 'risk' and average reward to 'reward' - because these are the things a trader can control with limit orders to take profit and stop-loss orders to control risk. Thus, for a given risk/reward ratio a trader needs to achieve a larger win/loss ratio to be profitable. It's that simple, keep risk/reward less than win/loss and LIFE IS GOOD. It is totally confusing to talk about win percentage which is the #wins/(#wins+#losses) - a very different metric that does not readily compare to reward:risk or the inverse that I prefer, risk:reward.
thanks a lot i understand 🙏🏄🏻♂️🤑😎
Glad to hear it!
thanks very much
You're welcome!
1.65:1.05 I am using
With a 1:5 R/R ratio you only need to be right 20% of the time and you'll still be making profit.
The market doesn't work that way.
@@RealJOGBz the market doesn't but maybe his setups does. its dependent of that person setups.,
@@KingJT80 the higher your RRR the lesser your chances of winning, 1:5 RRR will definitely have a very low WR.
@@RealJOGBz you're not wrong but you have to know what your win rate is first in order to determine what r:r you need to implement. Not the other way around
Only way to know is to trade and get the data
@@KingJT80 i think you are wrong here, it is you RRR that determines your WR, you can't get your wr without having a rrr, the rrr comes first.
I'm new to this. Would like to ask, if your entry is the same as your stop, what would be the risk/reward ratio?
You really cant have a risk same as ur entry cos u will get stopped out 95% of the time. You could however move ur stop eventually to your entry for breakeven exit assuming price returns to your entry but there has to be a systematic approach to this. Goodluck and my advice to you is dont rush take your time to study and understand this business.
@@paulrobertson3687 Thanks a lot! Will keep that in mind
Figure out your Win % and what the average profitable excursion in your system is first. Then you will know what the optimal R:R is to use.
THIS is correct. you dont know what you trades will do ahead of time. although lot of gurus will tell you they can get your average strike rate first then use the correct R:R
Your accent is so cute, no homo 😀
5:22 to 6:00 It's seems like he is talking about me 😅 ( 19 dec 2023 )
The a
Sawp and commision and fuck up t that though
Rule # 1: Don’t loose money
can you teach me how to trade football? I follow you on Twitter. please and thanks in advance.
trust me, 1:1,3 can save your life
depends on your setups. mine i dont need 1:3 just 1:2
What you just did, the opposite is exactly the case. What do you say about 10:1 RRR, so you need 10%WINNING rate to get this 😁, i will say the reverse is the case. In a 3:1 RRR you need a system of 75% winning rate to be in BREAKEVEN.
i fucking hate hindsight
👂he sound like he was adopted by a Chinese family.. 😆