its crazy that all the risk/reward videos i can find like this have >50k views. goes to show you that people like you and i are going to really be successful in the trading world. best of luck to everyone.
Thank you so much... this Risk/Reward Ratio and WinRate was the only thing keeping me out of trade since my math is not the greatest. Thank you so much, I appreciate it...I am going for my 3rd replay of this video and gluing it on my brain...
This video is a golden resource like all the others, thanks for your commitment. But I think the explanation of profiting from puts at the end was just a little convoluted (28:42). With the 10:1 ratio there's a high chance that you (won't) win and would need a 90% success rate for profitability. Unless I'm off base.
It's actually 300/1200, not 300/1500, as premium isn't refunded in case of call expiring ITM, the bet premium is non-refundable regardless of outcome. Pay to play. Add implied volatility to direction & time decay as a potential headwind for options buyers (IV decline reduces option price)
Thank you. This is great but how do I determine the reward? What is the process behind determining this precise reward of 60 and not 50 USD? Lets say it is not going up to 60 USD which she is expecting but instead 50 USD and she sells it there her rw/r is going to change from 5 USD reward per 1 USD risked to 2.5 USD reward per 1 USD risked. Had she sold at 50 she is changing her strategy. So she must carefully have chosen the reward at 60 USD and not 50 and this I have difficulty understanding which factors dictates a resonable set reward?
Generally. You want your risk:reward ratio to be lower than profit:loss ratio For example: risk ($50) : win ($100) for profit(1) : loss(2). Then you pretty much even . (Because you will lose 2x50, and win 1x100) Ex2: risk (50) : reward ($100); profit (1.2): loss(2). (Do the same math and you see that you gain slightly. Essentially, you want your risk to be smaller than your potential to win, via those two ratios. Otherwise just a bad trade.
Reward = win rate x amount risked. Say you place a bet that is 40% to win. You bet $100, then 100 x .4 = $40. Notice: lose rate = .6, then you will lose: 100x.6 = $60 So it turns out the expected result: $40-$60 = -$20. Which is quite intuitive. The difference between losing and winning is .6 - .4 = .2 (which means that for every dollar you bet, you expect to lose 20 cents. Betting $100, you expect to lose $20. Thus only place a bet when the reward ratio is greater than the lose:win ratio.
Odds of winning at 1:4 RR trade is 4x less than a 1:1, which is 50%. 50%/4 is 12.5%. She is winning 15% of the time on an outcome of 12.5%. She should have an edge of 2.5%? Or am I doing it wrong
In the exampe of s call option, if the price just doesnt go to your favor so you just lose at maximum the amount you paid for the options, in this case 300$? And if it goes to ypur favor you can actually buy thosa shares so you excercising your right to buy the actual shares? Can someone tell all the possible outcomes, negatives and positives? Do you sell the option and get the shares as your own or whats happeningv
Even if he tries we definitely loose as no one has the real Market data what you're seeing is indicators only and indicators are always lagging if you can't see the actual data you can't calculate chances
Hi, I have a question. Imagine I have USD $1000 and I'm willing to risk in every trade 2% of my total accumulated balance. My Risk/Rewards is 1:1.5. I need to create a market order, but I don't know how to calculate the leverage or any other variable I need to use, so I can set the order without losing more than 2% of my total accumulated balance (account). Can you help me?
Can i ask,is it compulsory for the risk to be higher than reward?,because i am in a situation whereby the risk is lower and reward is high,and i am using a put option(sell)
If the risk is higher than the reward. For example $100 to risk to win $50. That’s 2:1. Then the rate at which you win needs to be greater to profit. Say, 3:1, or 4:1. Or converting to percent 2:1 = 67%, then your win rate need to be greater than 67%, (3:1 = 75%, 4:1 = 80%, are both ok). Anything less, you be losing . EV = negative!
I’m not a trader but I know someone who does . We talk about it sometimes. I also play cards. From what I understand. risk is what you set to be your tolerance. The gain can be anything I guess. The most critical is making the right bet/trade (improving your win rate). The take away is if your rate of success is low, then the reward must be huge. And vice versa . In card game the rate is known if you know the cards, since we don’t, it’s at best a guess. But that is enough to place a bet with a range of expected outcomes.
Could this be calculated correctly, after the trade is complete and you know your absolute profit and loss values? Profit being reward, and loss being the risk? I'm having trouble understanding this with non-round numbers being used, or even decimal numbers. I understand it fully with the even rounded number you used in the examples. But what if I have a profit of $29 and risked $41, what is the expectancy per risk? I got $16.41. So does that mean, with this strategy, Im expected to receive $16.41 for every $41 at risk, with a win rate of 70.73% of the time? So collecting $29 is better than expected. Idk if that is right. This is why my math teacher hated me! lol. R:R of 1:.0705 and 70.73% win rate I also calculated given your instructions. Am I understanding this correctly? I'm really trying to lol. Thank you for your help, I really appreciate it. Or maybe the calculation/formula is ONLY relevant, BEFORE placing a trade and getting the profit and loss numbers? I'm trying to do it both ways but think Im just confusing myself lol
I'm new to this but I thought you just decide how much you're willing to risk to make X dollar amount. For example, I am willing to risk $1 to make $2 or $1 to make $3, or $1 to make $4, etc. Then my ratio would be 1:2, 1:3, or 1:4. Whichever I choose. So if I purchased X amount shares at $41 per share using the 1:3 ratio risk reward, I'm looking to gain $123.00, or the 1:2, then $82.00, etc. I'm interesting in swing trading and in all my research I learned that a 1:3 ratio is the best to use for this type of trading. It can all be confusing and overwhelming at the same time, so I'm just looking for simplicity. lol
The first hurdle of math is knowing what the terms mean. Otherwise you get all the variables mixed up. Risk = amount you can lose (which can be confused with the amount you bet) Reward = amount you can win (which can be confused with total amount : gain + original bet) It is better to be called loss and gain. Generally it’s more intuitive to put them side by side as ratios. Loss : gain Lose rate : win rate Also intuitively , you want win rate to be high, and gain to be high. However in reality things might not be so ideal. You might have a low win rate. Then you want a high gain. Such that, the gain:loss ratio is greater than the lose rate : win rate ratio. So whenever your gain is higher than expected then just consider it luck. Which will compensate for when your gain is low. It is as simple as you buying 4 pairs of shoes. You expect to profit 10 each. But after you sold all 4 pairs. You profit $10, 20, 10, and -$20. (Some unexpected large gain and even one loss) This gives you the following ratios Gain:loss = $40:$20 = 2:1 lose rate: win rate 1:3 This result is good because the first ratio is greater than the second. Evident by the amount you profit $20. Math can be quite intuitive if you keep the example simple and analyze carefully, logically, then add some complexity to different scenarios. Trading stock is the same. I was a math teacher and I play cards now. Which is similar to trading.
Try this example: Gain:loss = 3:1 Lose rate : win rate = 4:1 Would you attempt this trade? How about here? Gain:loss = 2:3 Lose rate : win rate = 1:2 As a card player, Gain: loss = 3:4 Lose rate : win rate = 1:4 Am I a winning player? (Just imagine I play 10 games, on average when I win I get $3, when I lose it is -$4)
Even if he tries we definitely loose as no one has the real Market data what you're seeing is indicators only and indicators are always lagging if you can't see the actual data you can't calculate chances
business studies (investments) but a practical way to do it, not just the explanation of what it is, learn here to trade currencies effectively and help you achieve financial freedom
its crazy that all the risk/reward videos i can find like this have >50k views. goes to show you that people like you and i are going to really be successful in the trading world. best of luck to everyone.
This is an excellent teacher. He shows STEP BY STEP how each step works
Thank you so much... this Risk/Reward Ratio and WinRate was the only thing keeping me out of trade since my math is not the greatest. Thank you so much, I appreciate it...I am going for my 3rd replay of this video and gluing it on my brain...
Finally, someone explains this shit clearly!
Came here mostrly for expectancies but then learned the basic concepts of options as well. Wow this is just excellent content.
Awesome. No one has described it as simply as you have. Thank you very much
well explained without complicating side conversations.
Soooooo helpful!!! Thank you kindly!
This is the very ABC related to trading! Thanks a lot for this teaching 🙏🙏🙏
This video is a golden resource like all the others, thanks for your commitment. But I think the explanation of profiting from puts at the end was just a little convoluted (28:42). With the 10:1 ratio there's a high chance that you (won't) win and would need a 90% success rate for profitability. Unless I'm off base.
I watch your videos from India
Excellent tutorial...Thank you....
hey, I couldn't find a video on discrete random variables on your channel could you please do a video on that?
Thanks for such an awesome informative video
Thank bro!! Very very nice
Great video, very clear. Thank you!
It's actually 300/1200, not 300/1500, as premium isn't refunded in case of call expiring ITM, the bet premium is non-refundable regardless of outcome. Pay to play.
Add implied volatility to direction & time decay as a potential headwind for options buyers (IV decline reduces option price)
great video
Great information!
**great! Now I can calculate how much risk is taken when robbing a bank**
Thank you. This is great but how do I determine the reward? What is the process behind determining this precise reward of 60 and not 50 USD? Lets say it is not going up to 60 USD which she is expecting but instead 50 USD and she sells it there her rw/r is going to change from 5 USD reward per 1 USD risked to 2.5 USD reward per 1 USD risked. Had she sold at 50 she is changing her strategy. So she must carefully have chosen the reward at 60 USD and not 50 and this I have difficulty understanding which factors dictates a resonable set reward?
Generally. You want your risk:reward ratio to be lower than profit:loss ratio
For example: risk ($50) : win ($100) for profit(1) : loss(2). Then you pretty much even . (Because you will lose 2x50, and win 1x100)
Ex2: risk (50) : reward ($100); profit (1.2): loss(2). (Do the same math and you see that you gain slightly.
Essentially, you want your risk to be smaller than your potential to win, via those two ratios. Otherwise just a bad trade.
Could make a video of The Black Scholes model and Value at Risk Concept :D
Thank you !
How do you calculate the reward? How would you know the amount of the potential reward? In your example how did you get$20
Reward = win rate x amount risked. Say you place a bet that is 40% to win.
You bet $100, then 100 x .4 = $40.
Notice: lose rate = .6, then you will lose: 100x.6 = $60
So it turns out the expected result: $40-$60 = -$20.
Which is quite intuitive. The difference between losing and winning is .6 - .4 = .2 (which means that for every dollar you bet, you expect to lose 20 cents. Betting $100, you expect to lose $20.
Thus only place a bet when the reward ratio is greater than the lose:win ratio.
Odds of winning at 1:4 RR trade is 4x less than a 1:1, which is 50%. 50%/4 is 12.5%. She is winning 15% of the time on an outcome of 12.5%. She should have an edge of 2.5%? Or am I doing it wrong
Thank you
In the exampe of s call option, if the price just doesnt go to your favor so you just lose at maximum the amount you paid for the options, in this case 300$? And if it goes to ypur favor you can actually buy thosa shares so you excercising your right to buy the actual shares? Can someone tell all the possible outcomes, negatives and positives? Do you sell the option and get the shares as your own or whats happeningv
Even if he tries we definitely loose as no one has the real Market data what you're seeing is indicators only and indicators are always lagging if you can't see the actual data you can't calculate chances
please do some question about translation reflection and rotation in details sir please
Hi, I have a question. Imagine I have USD $1000 and I'm willing to risk in every trade 2% of my total accumulated balance. My Risk/Rewards is 1:1.5.
I need to create a market order, but I don't know how to calculate the leverage or any other variable I need to use, so I can set the order without losing more than 2% of my total accumulated balance (account).
Can you help me?
How do you find the win rate ?
Can i ask,is it compulsory for the risk to be higher than reward?,because i am in a situation whereby the risk is lower and reward is high,and i am using a put option(sell)
If the risk is higher than the reward. For example $100 to risk to win $50. That’s 2:1. Then the rate at which you win needs to be greater to profit. Say, 3:1, or 4:1. Or converting to percent 2:1 = 67%, then your win rate need to be greater than 67%, (3:1 = 75%, 4:1 = 80%, are both ok). Anything less, you be losing . EV = negative!
Good video but no one knows the risk-reward ratio in stocks
I was totally thinking the same thing.... I really think this overcomplicates trading. You shouldn't ever have an "expectancy" entering any trade.
@@poquag349you Can if you see the real Market data but technical indicators no one predict with maths
I’m not a trader but I know someone who does . We talk about it sometimes. I also play cards.
From what I understand. risk is what you set to be your tolerance. The gain can be anything I guess. The most critical is making the right bet/trade (improving your win rate).
The take away is if your rate of success is low, then the reward must be huge. And vice versa . In card game the rate is known if you know the cards, since we don’t, it’s at best a guess. But that is enough to place a bet with a range of expected outcomes.
Could this be calculated correctly, after the trade is complete and you know your absolute profit and loss values? Profit being reward, and loss being the risk? I'm having trouble understanding this with non-round numbers being used, or even decimal numbers. I understand it fully with the even rounded number you used in the examples. But what if I have a profit of $29 and risked $41, what is the expectancy per risk? I got $16.41. So does that mean, with this strategy, Im expected to receive $16.41 for every $41 at risk, with a win rate of 70.73% of the time? So collecting $29 is better than expected. Idk if that is right. This is why my math teacher hated me! lol. R:R of 1:.0705 and 70.73% win rate I also calculated given your instructions. Am I understanding this correctly? I'm really trying to lol. Thank you for your help, I really appreciate it. Or maybe the calculation/formula is ONLY relevant, BEFORE placing a trade and getting the profit and loss numbers? I'm trying to do it both ways but think Im just confusing myself lol
I'm new to this but I thought you just decide how much you're willing to risk to make X dollar amount. For example, I am willing to risk $1 to make $2 or $1 to make $3, or $1 to make $4, etc. Then my ratio would be 1:2, 1:3, or 1:4. Whichever I choose. So if I purchased X amount shares at $41 per share using the 1:3 ratio risk reward, I'm looking to gain $123.00, or the 1:2, then $82.00, etc. I'm interesting in swing trading and in all my research I learned that a 1:3 ratio is the best to use for this type of trading. It can all be confusing and overwhelming at the same time, so I'm just looking for simplicity. lol
The first hurdle of math is knowing what the terms mean. Otherwise you get all the variables mixed up.
Risk = amount you can lose (which can be confused with the amount you bet)
Reward = amount you can win (which can be confused with total amount : gain + original bet)
It is better to be called loss and gain.
Generally it’s more intuitive to put them side by side as ratios.
Loss : gain
Lose rate : win rate
Also intuitively , you want win rate to be high, and gain to be high. However in reality things might not be so ideal. You might have a low win rate. Then you want a high gain. Such that, the gain:loss ratio is greater than the lose rate : win rate ratio.
So whenever your gain is higher than expected then just consider it luck. Which will compensate for when your gain is low.
It is as simple as you buying 4 pairs of shoes. You expect to profit 10 each. But after you sold all 4 pairs. You profit $10, 20, 10, and -$20. (Some unexpected large gain and even one loss)
This gives you the following ratios
Gain:loss = $40:$20 = 2:1
lose rate: win rate 1:3
This result is good because the first ratio is greater than the second. Evident by the amount you profit $20.
Math can be quite intuitive if you keep the example simple and analyze carefully, logically, then add some complexity to different scenarios.
Trading stock is the same. I was a math teacher and I play cards now. Which is similar to trading.
Try this example:
Gain:loss = 3:1
Lose rate : win rate = 4:1
Would you attempt this trade?
How about here?
Gain:loss = 2:3
Lose rate : win rate = 1:2
As a card player,
Gain: loss = 3:4
Lose rate : win rate = 1:4
Am I a winning player? (Just imagine I play 10 games, on average when I win I get $3, when I lose it is -$4)
Even if he tries we definitely loose as no one has the real Market data what you're seeing is indicators only and indicators are always lagging if you can't see the actual data you can't calculate chances
Great
th-cam.com/video/dl_NUgbIqbo/w-d-xo.html&feature=share
th-cam.com/video/dl_NUgbIqbo/w-d-xo.html&feature=share
wouldn't it technically be risking 4,000 since that the initial investment
Only if you allow the stock to hit Zero .. so the only way you are risking 4,000.00 is if you aren't setting a stop loss .
Is this business or economics?
business studies (investments) but a practical way to do it, not just the explanation of what it is, learn here to trade currencies effectively and help you achieve financial freedom
face reveal 😳
Could you tell me the time?
Damn Man which skill you don’t have . Even trading 😂
First
I love your teaching, but really hate the black background. It gives eye cancer.
It’s so annoying seeing how slow you draw each number. Next time type it,