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What's Risk and Reward ratio vs Profit factorWhat is Risk-Reward Ratio? The risk-reward ratio is a ratio used in investing that compares the potential profit or gain of an investment to the potential loss or risk that it poses. This ratio is often used to determine whether an investment is worth pursuing or not, and can be a helpful tool in managing risk. The risk-reward ratio is typically expressed as a ratio of potential profit to potential loss, with a higher ratio indicating a potentially more favorable investment opportunity. For example, if an investment has a potential reward of $10,000 and a potential risk of $5,000, the risk-reward ratio would be 2:1. Examples of risk-reward ratios can be found in many different types of investments, such as stocks, bonds, mutual funds, and options. For example, a stock that has a potential upside of $20 per share and a potential downside of $10 per share would have a risk-reward ratio of 2:1. Similarly, a bond that offers a potential yield of 6% and carries a potential risk of default of 3% would have a risk-reward ratio of 2:1. In general, a higher risk-reward ratio indicates a potentially more attractive investment opportunity, as the potential gains are greater than the potential losses. However, it is important to remember that higher potential gains also often come with higher levels of risk, and investors should carefully consider their risk tolerance before making any investment decisions. What is profit factor? The profit factor is a metric used in trading that measures the relationship between the profits generated by winning trades and the losses incurred by losing trades. It is calculated by dividing the gross profit of winning trades by the gross loss of losing trades. A profit factor of greater than 1 indicates that the trading strategy is profitable, while a profit factor of less than 1 indicates that the trading strategy is not profitable. A profit factor of exactly 1 means that the trading strategy has breakeven results. Some traders consider a profit factor of 2 or greater to be a good measure of a profitable trading strategy, as it indicates that the strategy generates twice as much profit as it incurs in losses. However, it's important to note that the profit factor is just one metric and should not be used in isolation to evaluate the performance of a trading strategy. Other important metrics include the win rate, average profit per trade, and maximum drawdown. In summary, the profit factor is a key metric used in trading to evaluate the profitability of a trading strategy, and it can help traders to assess the risk and reward potential of their trades. Example: Example 1 - Risk-Reward Ratio: Let's say you're considering buying a stock at $50 per share, and you believe it has the potential to rise to $70 per share. However, you also recognize that there is a risk that the stock could fall to $40 per share. In this scenario, the potential reward is $20 per share ($70 - $50), while the potential risk is $10 per share ($50 - $40). This gives us a risk-reward ratio of 2:1, which means that the potential reward is twice as high as the potential risk. Example 2 - Profit Factor: Let's say you have a trading strategy that involves making 10 trades over a period of time. Of those 10 trades, 6 are winning trades and 4 are losing trades. The gross profit generated by the winning trades is $6,000, while the gross loss incurred by the losing trades is $3,000. To calculate the profit factor, we divide the gross profit by the gross loss, which gives us a profit factor of 2. This means that for every dollar you lose on losing trades, you earn $2 on winning trades. By looking at both the risk-reward ratio and profit factor, you can evaluate the potential risk and reward of a trading opportunity and the profitability of a trading strategy. It's important to keep in mind that there are other factors to consider when making trading decisions, such as market conditions, technical analysis, and risk management strategies.
CAPITALCOM:GOLDEducation
by JackPepperstone
1
How to Be a Successful Beginner TraderWhen it comes to trading, many people think that it is an easy way to make quick money. However, the reality is that it takes time, effort, and patience to be a successful trader. In this blog post, we will discuss some of the key things that beginners need to do in order to be successful. Set realistic goals Setting realistic goals is important for any beginner trader. Without a plan and actionable steps, it can be easy to get discouraged or become overwhelmed. Trying to make too much money too quickly can also lead to losses. It's important to start small and work your way up. Don't try to go for the big win right away. Set a goal that is achievable and focus on that. Do not strive for perfection. Remember that trading is not a get-rich-quick scheme and you need to be patient in order to be successful. Keep things simple and defined It's important to keep your trading strategy simple and defined. Too many indicators and too many rules can make your strategy too complicated and difficult to follow. Backtesting your strategy on historical data can help you optimize it, but don't over-optimize or you'll risk ruining your strategy. Paper trading is a good way to test your strategy before using real money. When you're just starting out as a trader, it's tempting to try to find the perfect system. You might think that if you just use the right combination of indicators, you'll be able to beat the market. Unfortunately, it's not that easy. There are two problems with trying to find the perfect system. First, the market is constantly changing and what worked yesterday might not work today. Second, even if you do find a system that works, there's a danger of over-optimizing it. Over-optimization is when you keep tweaking your system, trying to get ever-better results. The problem is that when you do this, you're usually just fitting your system to past data. That means it will probably work well in the short term but not in the long term. A better approach is to keep things simple and defined. That way, you're less likely to over-optimize and more likely to be able to adapt as the market changes. One way to keep things simple is to use just a few indicators. It's often better to use fewer indicators that give clear signals than lots of indicators that give conflicting signals. You should also have well-defined rules for entry and exit points so that you know exactly when to buy and sell. Backtesting can help you optimize your strategy by seeing how it would have performed in the past. However, it's important not to over-optimize or you'll end up with a system that only works on paper but not in real life. Once you've got a system that looks promising, paper trade it for a while before using real money. Get a mentor A mentor can play an integral role in your success as a beginner trader. A good mentor will provide guidance and support, help you learn from their own experiences, hold you accountable to your goals, and keep you motivated throughout your journey. Finding a mentor can be tricky, but there are a few avenues you can explore. First, see if any of your friends or family members trade. If they do, ask if they would be willing to mentor you. If not, there are plenty of online resources available, like forums and chat rooms dedicated to trading. LinkedIn is also a great place to look for potential mentors. Once you've found a potential mentor, set up a meeting to get to know them better and see if they're a good fit for you. Be sure to come prepared with questions about their experiences trading and what they think makes someone successful. Also, be sure to let them know what your goals are and what you're hoping to get out of the mentorship relationship. If everything goes well, then congratulations! You've just taken an important step towards becoming a successful trader. Trading is not a get-rich-quick scheme Trading is not a get-rich-quick scheme. You will not become a millionaire overnight. You will have to be patient and handle a few losses along the way. Trading is a long-term game. The key to success in trading is to set realistic goals and take them one step at a time. Trying to make too much money too quickly can lead to losses. Focus on achievable goals, and don't strive for perfection. Remember that trading is a long-term game and you need to be patient to be successful. Another important key to success is to keep everything simple and defined. This has to do with your analysis, trading strategy, and trading plan. Over-optimizing your strategy can lead to ruined results. Backtesting can help you optimize your strategy, but don't over-do it. Paper trading is a good way to test your strategy before using real money. In order to be successful, it is also important to find a mentor who can provide guidance, support, and advice based on their own experiences. A mentor can help you learn from their mistakes so that you don't have to make them yourself. You can find potential mentors through friends and family, online resources. When meeting with a potential mentor, come prepared with questions and let them know your goals. Trading is not a get-rich-quick scheme - it takes time and patience to be successful. By following these tips, you'll be on your way to becoming a successful trader. Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩‍💻
OANDA:XAUUSDEducation
by Lingrid
18
Is it your strategy or you???What is your strategy? If asked, could you explain it to one of your friends or family members? More importantly, does it make sense? Is it clear? Teaching or Sharing your thoughts & methods leads to a deeper understanding of the content. If nothing else, speak aloud and hear your reasoning out of your own mouth before taking a trade. My current strategy is to take a defined structure from Swing High to Swing Low or Swing Low to Swing High and use it as the basis for my analysis. Naturally, the structure will indicate a trend, and I would need to decide if that trend is in alignment with or contrary to the broader market. Either is fine, but this distinction is essential when assessing targets and risk. I have to constantly remind myself that I don't know what the market will do. Since I don't know what the market will do, it follows that I should be open to changing my mind and also safeguarding against my ignorance. With this being said and firmly in mind, there are three levels that I like to pay attention to. They are: Breakouts of previously established key levels. The .618 Retracement & 1.618 Extension (current and previous structures) Between the .786 & .886 Simple enough. I'm sure that your strategy for entry can be explained in layman's terms as well. The issue typically doesn't lie in the analysis it lies in the trader's ability to follow said analysis and follow it consistently. Does this sound relatable? You spend hours or maybe even days conducting your analysis, waiting for the market to make its move and give you some indication of what might happen in the near future. As time passes, things seem to become more clear, and you see your opportunity coming. Sure there are a few unexpected movements that happen along the way but that's just how markets move. Price approaches your entry but not yet. Hell, it may not actually reach the level at which you established as a good entry. So you enter early and let the candles fall where they may. If you have fixed stops, now your levels are thrown off. If you don't, then any concept of risk that you had in your mind has been altered and you now bear the task of making mental adjustments to compensate for a completely different trade. Because that's exactly what it is, a completely different trade, with new numbers, figures, distances, R&R ratios, and new implications of risk. The market moves in your favor, possibly even nearing your predetermined target. If it's a fixed number of pips, then that number has changed. If it was a fixed target then your projected profits have changed. This may not seem like a big deal but for beginning traders who are establishing their system, this means everything. Every decision you make against yourself has future implications on your equity curve, but also on your confidence and understanding of what you are doing in the market. In order to be consistent and profitable in the market we must learn to trade in a consistent manner with a strategy that will prove to be profitable over time. The market continues to move but it has taken a sudden turn against you, whatever profits you had are quickly erased and price action now edges toward your stop loss. You've been stopped out only to learn that if you had been patient at entry and kept your original strategy in place, you wouldn't have been stopped out, and price action would have ultimately gone in your favor reaching your target. The point of all this is to illustrate that we unconsciously make changes to our strategies as we are deploying them. These changes have a compounding effect on the outcome of our trades. Even if you are made a winner by these changes you've made, you will have reinforced a bad habit that will undoubtedly lead to many losses in the future. There is power in understanding the unique set of tendencies and preferences that make you the type of trader you are. If you continue to ignore this, you will rightfully take your place amongst the other 90% of failing traders. When you start to pay attention to your own uniqueness and figure out what concepts, ideas, strategies, tools, and methods resonate with you, then you will be on your way to developing a system that you can trade consistently. Losing is a part of the game. You may as well lose in a manner that produces feedback that can be learned from. Are you losing because your strategy needs adjusting or are you losing because your psychology needs adjusting? It should be stated that any given trade, from start to finish, can be, and typically is, more nuanced than what I've just described. Its simplicity should not overshadow its intent. The chart attached to this post shows that there are multiple opportunities for entry for mine and, quite possibly, your strategy. All a trader needs to do is be patient and allow the market to tell you what it is doing. Along with entries are maintenance and exits. Targets are just as important as entries if not more so. Your unique perspective as a trader will heavily impact the decisions you make in all three phases of trading. Levels of Development LLC is providing this material for this site and any other related sources (including newsletters, blog post, videos, social media and other communications) for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and may not represent specific trades or transactions that we have conducted. In fact, we may use examples that are different or the opposite of transactions we have conducted or positions we hold. All investing and trading in the securities market involves risk. Any decisions to place trades in the financial markets, including trading in stock or options or other financial instruments, is a personal decision that should only be made after thorough research, including a personal risk and financial assessment, and the engagement of professional assistance to the extend you believe necessary.
BLACKBULL:US30Education
by LevelsArchitect
Your Uniqueness in the MarketTake a look at this chart, or any chart of your choosing, and tell me what you see! Not just the technical terms and the direction of the market but explain what you are seeing, thinking and feeling as you read the market data from start to finish. If you got the responses from twenty different people, you'd receive twenty different perspectives with twenty different interpretations. Some of them overlapping in their theories and explanations while others violently contradict and oppose each other. The beautiful thing about trading is that we all at one time or another are correct. "Correct" being that their was a legitimate opportunity to place a trade and make money based on your unique perspective of the information. The difficult thing in trading is really understanding what we see and perceive in all of the market data. I want to emphasize... The difficult thing about trading is in truly understanding how we see and interpret market data in our own unique way. Some people see long, while others see short, and depending upon the system; on any particular trade, on any particular day, both sets of people are correct. All systems have winners and losers, its an unavoidable fact. The acceptance of this fact will help you understand that you don't necessarily need to go searching for someone else's way of trading, you only to need gain a thorough understanding of how you view things. What resonates with you and your uniqueness? Maybe its moving averages and RSI, maybe its price action and support and resistance, or maybe its simply the day of the week at a specific time. When you start to unpack your way of making sense of the market you can find your unique way of operating in it. If success in the market was primarily based on technical skills, and the use of tools, indicators, and spreadsheets. There would be a lot more profitable traders. Trading attracts some of the most brilliant minds, intellectual beasts, and academic rockstars, and yet over 90% of traders fail and are unsuccessful. You yourself, as you read this may realize you are a brilliant person yet you struggle to stay consistent with your trading. The answer to your problem is not solely in the technical skill, its likely hiding in the unexamined parts of your personality. If you know this, then you also know that awareness and application are two totally different things. You can be aware that you have a personal problem with following a trading methodology but feel totally powerless in correcting it. My question to you would then be, how much time have you spent experiencing your own unique style of trading? Stop fighting your nature, and embrace your expression. There are market fundamentals and market basics that every trader needs to understand. Price Action Structure Trend Risk Beyond this your style of trading is likely a combination of many different skills that you've accumulated from various sources. The important thing for each trader is to understand which skills resonate most with them. Which skills fit your unique market perspective. Which skills can you use to build a system of trading that allows you to account for the mixture of wins and losses, while keeping you in an optimal mental space, so that you may execute on your level of understanding. I think the challenge for every trader, is to take the time to identify a purpose in their trading. To understand why it is that you feel drawn to embark on such a challenging task. Those traders who stick with it, and generate some answers to these questions will have taken huge strides in understanding how the market serves as mirror. Reflecting back at you, the potential for you to fulfill your desires coupled with everything that you need to work on, and improve upon, on a very personal level. If you don't come from a trading and investing background, either from family ties or academia, then all of this becomes even more important. Self- taught traders need to understand their uniqueness in the market. You are the most important part of your trading system. It would be crazy not to give yourself the time and attention you deserve. Happy Trading!
UEducation
by LevelsArchitect
1
MONEY MANAGEMENT: The MOST Important Aspect of TradingIf you are a professional trader or plan to become one, Money Management is your #1 job. You could be the best chart reader or statement analyzer in the world but if you have poor money management you will still fail. In order to succeed you first have to last, and to last in the trading business you must be able to handle risk and manage it accordingly. How you handle Money Management comes down to a few simple things: Risk limits - This consist of knowing your risk per trade, your max drawdown, and buying power limitations. ○ Risk per trade: This is the amount you are willing to lose if the trade goes against you and stops out (remember to always have a stop loss). Many traders refer to this as Risk Units or simply 'R'. This should be a defined amount that does not vary based on emotion. If you do use different risk for different trades you should have that clearly defined in your trading plan otherwise each trade should be the same. Risk per trade should be around 1% for experienced traders and $10 for new traders as they work towards slowly raising risk with consistency. ○ Max drawdown: This is the max amount you are able to lose per timeframe. For example, a day trader may have a max drawdown of 3R per day, 7R per week, and 13R per month. Max drawdown demands that if you lose that amount in that timeframe you are to be done trading until the next one. This helps traders from spiraling out of control and blowing up a trading account. ○ Buying Power Limitations: Knowing how many trades you are able to take at one time will help define your strategy. Expectations - This consist of knowing your expectancy and timeline ○ Expectancy: Your trade expectancy is the most important stat in all of trading. It tells you what you expect to make per trade. In order to properly manage risk you have to be sure that the strategy is worth it. The expectancy stat is how you do just that. For more info about expectancy check out my post on it here ○ Timeline: Everything takes time. Trading is no different. Having a realistic expectation about your timeline and how much you are going to make is a critical element in helping traders stay focused on their goals and not fall into a get rich quick scheme. If you expect your trading career will take 3-5 years to become profitable you will manage your money much better than someone who expects full time profits in under 1 year. Yourself - This consist of knowing your personality and trading plan ○ Personality: What is your personality like? Are you a jittery person or are you robotic. Knowing this will help build a management that you can trust and are able to follow. ○ Trading Plan: Make sure your trading plan fits your trading style. You have to take many things into consideration here such as time constraints, goals, and personality. It takes time to figure out what works for you. If you can determine how to handle these three factors then you will be well positioned to not struggle with money management. After you have the fundamentals written in your trading plan all it comes down to is staying disciplined and following the rules set for yourself. Clearly define your limits, have an expectation, know thyself. Thanks for reading, follow @Jlaing for more educational post about Money Management, Trading Stats, and more. I also stream a stock day trading chat room every morning at 9:15 EST right here on TradingView, come check it out and say what's up.
BITSTAMP:BTCUSDEducation
by JLaing
EXPECTANCY: The Golden Key StatisticWhat is Expectancy? Expectancy is the one of the most important statistics in trading. Expectancy is how much you expect to make per trade. If you have an expectancy of 0.3 that means you make 30% of your average risk per trade. If you risk $1000 per trade, then you would receive $300 on average for EVERY time you took a trade. The baseline for a worthwhile & profitable strategy for most traders is an expectancy of 0.25 or higher. Anything more than 0.5 is outstanding. How do you calculate expectancy? A few different ways: (gross profit/# of trades)/Avg. Risk or ((Win%*Avg. Win)-(1-Win%*Avg. Loss))/Avg. Risk The table on the chart breaks down the required Win% and Profit/Loss ratio needed for an expectancy greater than 0.25. As you can see there are multiple ways to build a profitable strategy. What does Expectancy tell you? Expectancy is a crucial stat for traders because it lets them know if their strategy is valuable. The only way to know your expectancy is to track your trades! Tracking your trades is an essential part of the job as a trader yet many fail to do so. It can be done for free with some simple spreadsheet formulas and a bit of time. Track your trades, review your stats, improves your trades. Rinse & repeat. Thanks for reading, follow @Jlaing for more educational post about Money Management, Trading Stats, and more. I also stream a stock day trading chat room every morning at 9:15 EST right here on TradingView, come check it out and say what's up.
BITSTAMP:BTCUSDEducation
by JLaing
My First Forex Analysis of EURUSD on the 1-Hour TimeframeThe Market was in an upward trend from Tuesday 22nd '22 up to Wednesday 23rd '22, and the trend was broken by Thursday 24th '22 low leading the market to change to the state of consolidation. Friday 25th '22 Low cleared Thursday 24th '22 low taking out the liquidity created in that Thursdays low, then the market entered into the range before market close for the week. It my first time, I am opened to corrected and hoping to learn more...
by Okere_NP
US30: Potential Sell ZoneMy first post. Lately I've been trying to nail down my strategy into something that I can act on consistently. Teaching or Sharing thoughts lead to a deeper understanding of the content so I would love to hear anything constructive from you market wizards. I've identified two structures here. #1: The Highest Swing High to the Lowest Swing Low. #2: The most recent Swing High to Lowest Swing Low, based on where price is currently on the Daily chart. Using these four data points, I then use Fibonacci to chart what I believe to be significant market levels (below): #1: The .618 Retracement of the largest structure #2: The .886 Retracement of the smaller structure #3: The 1.272 Extension of a smaller structure I look for a cluster of fibs that may also line up with support/resistance, break and retests. The more points of confluence the better. The clusters signal areas of interest. (Set an Alert) Once price reaches this area, Analysis can be done on smaller time frames for precise entries. I'm still nailing down my trading style and risk management profile. I don't like to throw arbitrary shorts and longs on charts that don't have some solid logic behind them. I typically have tight stops, which means I get stopped out a lot. (Whatever its apart of the game.) I'm still climbing the mountain of trading discipline and resisting the urge to take random trades, revenge trade, move stops, and the more. I'm a believer in trading psychology and every trader having a unique place in the market. If we as traders are operating outside of our place in the market due to inconsistent trading habits, lack of self-control, or a poor understanding of what it is to be our own versions of successful, then we will likely struggle until something clicks. I'm excited to be more involved on the Tradingview platform.
UShort
by LevelsArchitect
4
Simple Technical Analysis for BeginnersIdentifying the Support (lowest price), Resistance (highest price), and Key Levels (areas price gravitates to between Support and Resistance) one two or more timeframes. Today, I have them marked on the 4H and 1H Timeframes. Identifying Support Support is the lowest level a price will go before reversing. A support is created in two ways. The first way is when Sellers in the market close their existing positions and take their profit. The second way is when new Buyers enter the market by opening new positions. Identify all historical Lows in a chart. Circle these zones. Connect as many as possible using straight horizontal lines. These are known as areas of Support. Identifying Resistance Resistance is the highest level a price will go before reversing. A Resistance is created in two ways. The first way is when Buyers in the market close their existing positions and take their profit. The second way is when new Sellers are entering the market by opening new positions. Identify all historical Highs in a chart. Circle these zones. Connect as many as possible using straight horizontal lines. These are known as areas of Resistance. Chart Made Using AlphaMind AM All-In-One Indicator
Education
by elleferrero