13. A lesson on Risk/Reward and Stop Loss
Updated
Hi traders,
This is my 13th posting. Today, I am going to talk about something I find to be very useful. If you are here for the first time, please take some time to read all the preceding ideas. If you do not read the previous ideas, then you might not appreciate the flow.
Remember. Only 20% of traders manage to make money from trading forex. Traders are those who trade base on facts. Facts are things you can see, verify and quantify. The remaining 80% who lose money are gamblers who rely on luck and tradingview.com ideas for their trades. They are the type who easily accept everything they are told without using their brains to think things over. I am going to repeat this, IN THIS BUSINESS, YOU MUST LEARN TO FILTER WHAT WORK AND WHAT DON'T. You must rely on your COMMON SENSE and be street smart to stay alive in this cutthroat environment. Make no mistake about this. Do not easily place your trust on others here in tradingview.com. That includes me.
Just a bit on my trading journey:
I started trading on 16 Oct 2019. My journey has not been easy. I busted my account twice. I did the stupid things most beginner did. I paid for signals and for education from 'experts' here in tradingview.com. It won't take long for you to realize that these 'experts' really knows nothing. Today, these 'experts' are still active here in tradingview.com. I was still 'drifting' in my trading until I saw the ideas from this guy (jojofang0901) in October 2021. His method relies on trendlines, H&S and price action. This guy is selfless and shares his experience all for FREE. I can see he is sincere. But within 2 weeks, I can see a flaw in his analysis. Something is still missing. I saw this after his analysis on EURUSD and XAGUSD fell through. It was also during this time I saw 2 trading videos from Youtube as luck would had it. It changed everything. I saw what was missing from his analysis. Immediately everything falls into place in my mind. These are the ideas I am sharing with you now. Even though the Youtube videos only discuss basic trading ideas, I began to realize quite a lot after thinking about the whole thing in November 2021. From December till this week, I managed to double my account. One thing you feel when you finally make it as a 'trader' is CONFIDENCE.
RISK/REWARD in trading - the herd mentality.
The herd would be taught the same thing which I believe all of you would know by now. If you have $100, you only trade 1% or 2% at any one time. Use the same lot size for obvious reasons. Do not open new trades until you close off your existing ones so that you do not 'over trade'. Always remember to preserve your capital. When you trade, make sure reward is more than the amount you risk. If you risk 10 pips, make sure you aim for a 20 pips or more in profits. In this way, you can be profitable even if your win rate is less than 50%. Always trade with a SL. As you can see, they did not teach you how to WIN and most importantly, THEY DO NOT SEE A HIGH WIN RATE AS IMPORTANT. They only teach you how not to LOSE everything. They teach you that profit in trading comes from consistent trades with favorable reward/risk, often 2x or more - oxymoron - don't you realize that the higher the R/R, the smaller the chance of winning.
Now, spend some time to think about this, the pros and the cons. I think you can now see the limitation this imposed on your trading.
Lets move on to what an alternative to the above can be. There are just 3 important points to note.
1) Profit in trading forex comes from having the HIGHEST WIN RATE POSSIBLE. Just WIN. Why? Because every time you TP, it is governed by price hitting Demand Zone (sell trade) or Supply Zone (buy trade). I aim for a 80%++ win rate although my current is just 78%.
How do you achieve 1 above? See 2 and 3 below.
2) Trade with a Capital bigger than the Market. What does this mean? Lets say you have a capital of $100. You open a $1 trade at 300x multiplier, each pip will cost you around $0.026. From the highest (1.2350) to the lowest (1.1121) in EURUSD, it is about 1229 pips equivalent to $31.95. This is a bit exaggerated but you see my point. Other than paying overnight fees, you can always wait for price to come back to profitability. You can also see how much you can Trade in relation to the Capital you have. I know at this point you might think I am crazy to ever suggest such a method. This method is not crazy if you have been following me from the start, especially when I talk about Volume Profile (VP). With VP, you are never going to lose 1229 pips.
3) If you use VP, D&S and price actions, chances are you can have higher chances of winning. As you can see in the chart above, the POC is around 1.1800. One reason why I choose to trade EURUSD is that price fluctuations moves in a familiar manner. Now price is BELOW the POC. When you trade VP, you can smell opportunity the farther price moves away from the POC. When price is below POC, I BUY more than I SELL. The further price is away from POC, the bigger the amount of my BUY trade. I rarely have SL for my BUY trade (I will SL if I breached 2 above) when price is below POC. But I have SL for ALL my SELL trades, especially when price is far BELOW the POC. The SL are based on the D&S zones.
What I can say is that price will most likely move back to the POC. You just analyze the VP and its POC on a daily basis, to see if there is trend continuation or reversal scenarios.
If you add 1+2+3 above, I think you know what I am trying to show you. Now just use your common sense to think it over. Compare it against what the herd is practicing. At least I am giving you an option to think over. You won't find this kind of crazy ideas anywhere. Mainstream will never allow this.
When you achieve a high enough win rate, it will more than compensate for your losing trades. You can achieve profitability.
When you find something that works, all you need to do is to practice it until you are familiar with it.
Give it a try. Start with $1 and see if it work for you.
Happy trading.
P/S : As always, do not just believe what I say. Use your common sense.
This is my 13th posting. Today, I am going to talk about something I find to be very useful. If you are here for the first time, please take some time to read all the preceding ideas. If you do not read the previous ideas, then you might not appreciate the flow.
Remember. Only 20% of traders manage to make money from trading forex. Traders are those who trade base on facts. Facts are things you can see, verify and quantify. The remaining 80% who lose money are gamblers who rely on luck and tradingview.com ideas for their trades. They are the type who easily accept everything they are told without using their brains to think things over. I am going to repeat this, IN THIS BUSINESS, YOU MUST LEARN TO FILTER WHAT WORK AND WHAT DON'T. You must rely on your COMMON SENSE and be street smart to stay alive in this cutthroat environment. Make no mistake about this. Do not easily place your trust on others here in tradingview.com. That includes me.
Just a bit on my trading journey:
I started trading on 16 Oct 2019. My journey has not been easy. I busted my account twice. I did the stupid things most beginner did. I paid for signals and for education from 'experts' here in tradingview.com. It won't take long for you to realize that these 'experts' really knows nothing. Today, these 'experts' are still active here in tradingview.com. I was still 'drifting' in my trading until I saw the ideas from this guy (jojofang0901) in October 2021. His method relies on trendlines, H&S and price action. This guy is selfless and shares his experience all for FREE. I can see he is sincere. But within 2 weeks, I can see a flaw in his analysis. Something is still missing. I saw this after his analysis on EURUSD and XAGUSD fell through. It was also during this time I saw 2 trading videos from Youtube as luck would had it. It changed everything. I saw what was missing from his analysis. Immediately everything falls into place in my mind. These are the ideas I am sharing with you now. Even though the Youtube videos only discuss basic trading ideas, I began to realize quite a lot after thinking about the whole thing in November 2021. From December till this week, I managed to double my account. One thing you feel when you finally make it as a 'trader' is CONFIDENCE.
RISK/REWARD in trading - the herd mentality.
The herd would be taught the same thing which I believe all of you would know by now. If you have $100, you only trade 1% or 2% at any one time. Use the same lot size for obvious reasons. Do not open new trades until you close off your existing ones so that you do not 'over trade'. Always remember to preserve your capital. When you trade, make sure reward is more than the amount you risk. If you risk 10 pips, make sure you aim for a 20 pips or more in profits. In this way, you can be profitable even if your win rate is less than 50%. Always trade with a SL. As you can see, they did not teach you how to WIN and most importantly, THEY DO NOT SEE A HIGH WIN RATE AS IMPORTANT. They only teach you how not to LOSE everything. They teach you that profit in trading comes from consistent trades with favorable reward/risk, often 2x or more - oxymoron - don't you realize that the higher the R/R, the smaller the chance of winning.
Now, spend some time to think about this, the pros and the cons. I think you can now see the limitation this imposed on your trading.
Lets move on to what an alternative to the above can be. There are just 3 important points to note.
1) Profit in trading forex comes from having the HIGHEST WIN RATE POSSIBLE. Just WIN. Why? Because every time you TP, it is governed by price hitting Demand Zone (sell trade) or Supply Zone (buy trade). I aim for a 80%++ win rate although my current is just 78%.
How do you achieve 1 above? See 2 and 3 below.
2) Trade with a Capital bigger than the Market. What does this mean? Lets say you have a capital of $100. You open a $1 trade at 300x multiplier, each pip will cost you around $0.026. From the highest (1.2350) to the lowest (1.1121) in EURUSD, it is about 1229 pips equivalent to $31.95. This is a bit exaggerated but you see my point. Other than paying overnight fees, you can always wait for price to come back to profitability. You can also see how much you can Trade in relation to the Capital you have. I know at this point you might think I am crazy to ever suggest such a method. This method is not crazy if you have been following me from the start, especially when I talk about Volume Profile (VP). With VP, you are never going to lose 1229 pips.
3) If you use VP, D&S and price actions, chances are you can have higher chances of winning. As you can see in the chart above, the POC is around 1.1800. One reason why I choose to trade EURUSD is that price fluctuations moves in a familiar manner. Now price is BELOW the POC. When you trade VP, you can smell opportunity the farther price moves away from the POC. When price is below POC, I BUY more than I SELL. The further price is away from POC, the bigger the amount of my BUY trade. I rarely have SL for my BUY trade (I will SL if I breached 2 above) when price is below POC. But I have SL for ALL my SELL trades, especially when price is far BELOW the POC. The SL are based on the D&S zones.
What I can say is that price will most likely move back to the POC. You just analyze the VP and its POC on a daily basis, to see if there is trend continuation or reversal scenarios.
If you add 1+2+3 above, I think you know what I am trying to show you. Now just use your common sense to think it over. Compare it against what the herd is practicing. At least I am giving you an option to think over. You won't find this kind of crazy ideas anywhere. Mainstream will never allow this.
When you achieve a high enough win rate, it will more than compensate for your losing trades. You can achieve profitability.
When you find something that works, all you need to do is to practice it until you are familiar with it.
Give it a try. Start with $1 and see if it work for you.
Happy trading.
P/S : As always, do not just believe what I say. Use your common sense.
Note
Just found out that jojofang0901 started offering mentorship/coaching in return for money. A big let down indeed. Always be wary when people start asking for money. I think one thing still holds true, successful traders make money from trading. Those unsuccessful ones will start offering lessons.
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