Get started

Riskreward

The Truth About Trade AccuracyA critical component relating to trading success is the relationship between your win percentage and your bottom line. Many new traders hold some extremely inaccurate views when it comes to what kind of win percentage is required to generate net profit, including the notion they need a 70% or higher win percentage to achieve success. This notion is wrong and misleading. The relationship between your win percentage, your risk management, and the profit you generate from each trade are intricately related. The beauty of this post is that the backtest logic in our Olympus Cloud indicator showcases the concepts covered with real trades, which is shown under this post in the data section. The Positive Win Percentage A win percentage over 50% is regarded as a probable edge or edge. Yet, even with a 60% win rate, you can generate a net loss. How? If your average loss is $100, but you are in the habit of falling prey to your emotions and prematurely selling your winners so you only generate an average of $50 when you win, you will lose money regardless of your 60% win rate. No trader goes into a trade thinking, “Hey, I’ll lose $100 if I’m wrong and I’ll make $50 if I’m correct.” Nevertheless, random wins of $75, $25, $60, $40, $90, and $10 will average out to $50 per win. No one purposely tries to win half of what they lose, but random trading combined with random emotions produces random results. We all desire winning and making good profits when we take a trade, but as emotions come into play, things quickly change. You may take a trade that reaches $75 in profit and then decide the move looks gassed out, so you sell. On another trade, you might get scared by some volatility, or notice a resistance you neglected to spot initially and sell for $25 of profit. It is all too common to fall prey to your emotions and behave in a way you didn’t plan to. The irony is, that you will regard the $25 trade as a winner, and it will raise your trade accuracy. Let’s look at a simple example: Example: 100 total trades with 60% trade accuracy 60 winning trades at an average of $50 per win = $3,000 40 losing trades at an average of $100 per loss = $4,000 Net loss of $1,000 In the example above, your break-even point is a 67% win percentage for a whopping $50 in profit. With this type of random risk and profit management, any meaningful net profit requires a win percentage upwards of 75-80%. The psychological damage of having a higher average loss than an average win is hard to quantify, but it’s easy to feel frustration when one loss wipes out two wins. While this sounds like common sense, many, many new traders fall into the habit of random profit management and find themselves in this undesirable situation. The same theory holds true even if you let your winners play out, but you also let your losses escalate and take a few big hits to your account. In either scenario, your 60% win rate means nothing. The Negative Win Percentage In the case of a negative win percentage, you can produce a net profit even if you are correct less than 50% of the time. In this scenario, your advantage over the market is getting into trades that consistently provide large gains when you win, and by letting those winners play out fully. Furthermore, you can’t hesitate to cut your losses and keep your drawdown controlled. With this kind of win rate, you must not sell early or your entire business model falls apart. You must understand that the big winners will make up for any profit you leave on the table. Let’s look at what happens if you are correct 40% of the time, but your average win is $100 and your average loss is $50: Example: 100 total trades with 40% trade accuracy 40 winning trades at an average of $100 per win = $4,000 60 losing trades at an average of $50 per loss = $3,000 Net gain of $1,000 It is now clear that win percentage is not everything. You can make money even if you are correct on 40% of your trades as long as your average win is double your average loss. The smaller your average win compared to your average loss, the higher your accuracy must be to make a net profit. Of course, if you can maintain a win percentage over 50% while also having proper risk and profit management you will end up far ahead. Putting It Together Clearly, the best approach is to combine a reasonable win percentage of over 50% with proper risk and profit management. You must consistently let your winners play out regardless of the emotions you feel in the moment and ensure you don’t take losses beyond a certain threshold. Furthermore, scaling out of trades – selling portions of your position as the market moves in your favor – will increase your accuracy and ease your mind. By dividing your position into two or three tranches you can lock in a certain amount of profit at predefined targets and then let the final portion ride out the trend with a trailing stop-loss. Revisiting our example, let’s put these concepts together with a reasonable win percentage: Example: 100 total trades with 55% trade accuracy 55 winning trades at an average of $100 per win = $5,500 45 losing trades at an average of $50 per loss = $2,250 Net gain of $3,250 Now, that’s what you want to see! It’s more important you behave in a consistent manner and follow a predefined game plan than it is to have 80% trade accuracy. It is wise to strive for reasonable trade accuracy – 50% to 65% – and remain consistent in order to fulfill your trading potential. After you have mastered your emotions with a consistent strategy, perhaps you can raise your win percentage to mythical values like 80%. As we have covered, though, such accuracy is not required for great trading results.
AMEX:TANEducation
by Level8Trading
1
BTC TA - Bearish scenario 4h I opened a short yesterday at the $23300 level. Let's see what will happen 🚀. Just remember: Stick to your plan and have a good risk management 👍 And that's the main reasons I decided to take a short on BTC : ► Confirmation of the breakdown of the rising wedge ► Retrace of the 0.5 fib level ► Tripple or four Top ► High risk reward ratio Trading setup: Entry: $23310 SL: Moved to small profit TP1: $21600 (already taken 40%) TP2: $20555 ⚡Just to notice. We are right now in a very volatile market phase in the crypto. Crazy and unpredictable things could happen. That's why you should use a stopp loss. ⚡ Disclaimer: DYOR. No financial advice. Just for your impression.
BITFINEX:BTCUSDShort
by CryptoPlough
NIKKEI 225 BUYCONFIRMATIONS - I believe price is going to fall for the next 12-14 hours however reverse of the ascending redline located on my fib at 27962. - I never want to say this is a "prime example" because things can change. But this is a pretty regular chat pattern that is forming a "rising wedge". This is a chart pattern I look for very often. - Price has continued to respect my ascending trend line. - Price is simply in an uptrend. - 50 MA is right under price. - Risk/Reward is 3:1 - Waiting for a shooting star or inverted hammer candlestick.
BLACKBULL:JPN225Long
by KairosTrades
Measure Reward-to-Risk Ratio (RRR) key Takeaways 1. The risk/reward ratio is used by traders and investors to manage their capital and risk of loss. 2. The ratio helps assess the expected return and risk of a given trade. 3. An appropriate risk reward ratio tends to be anything greater than 1:3. How to Measure Reward-to-Risk (RRR) ? 1. Evaluate the potential price levels for your stop loss (SL) and profit target (PT) 2. Measure the distance between your entry and your stop loss (SL). This is your “Potential Risk“. 3. Measure the distance between your entry and your profit target (PT). This is your “Potential Reward“. 4. Divide the two: Potential Reward / Potential Risk. RRR Calculation 1. Potential Risk = 66.24 - 63.73 = 2.51 2. Potential Reward = 63.73 - 54.97 = 8.76 3. RRR = Potential Reward / Potential Risk = 8.76/2.51 = 3.49
BINANCE:LTCUSD.PEducation
by yaser_rahmati
$EQNR coming up on the right side of its base!Notes: * Strong up trend since 2020 on all time frames * Good earnings in the recent quarters * Pays dividends * Basing for the past ~5 months * Showing signs of coming up as the Energy sector shows strength * Came back above its 50 day line with higher than average volume * Lots of accumulation recently * Also printed a Pocket Pivot indicating institutional demand Technicals: Sector: Energy - Oil & Gas Integrated Relative Strength vs. Sector: 11.83 Relative Strength vs. SP500: 1.85 U/D Ratio: 1.15 Base Depth: 22.21% Distance from breakout buy point: -8.12% Volume 1.69% above its 15 day avg. Trade Idea: * You can enter now as the price is coming back up above its 50 day line * If you're looking for a better entry you can look for one around 34.50 * This stock usually has local tops when the price closes around 15.28% above its 50 EMA * Consider selling into strength if the price closes 15.08% to 15.48% (or higher) above its 50 EMA * The last closing price is 3.34% away from its 50 EMA
NYSE:EQNRLong
by HaseebKhan_90
USOIL SELLCONFIRMATIONS - Market closed with double bottoms which is a sign of a possible uptrend. - Drew out my fib & it so far makes sense, its showing me the major areas where price has been rejected. I am waiting for price to hit my 38.2% fib, then I will enter for a sell. - I will be looking for double tops which typically signify price might drop. - Also will be looking for a doji or shooting star candlestick . -Price is officially under my 50 moving average - Im looking for price to retest then drop. - On Tuesday crude oil inventories will be released.
FX:USOILSPOTShort
by KairosTrades
EXIT STRATEGIES: Money ManagementHey traders, Today I wanted to dive into exit strategies. A lot of you will already have a very clear understanding of what an exit strategy is and how you usually go about it. Most of you are probably automatically thinking of stop losses and take profits, which is fair enough. Today however, I wanted to dive into some more advanced techniques. I want to have a look at what you need to be thinking about prior to entering a trade, during the trade, and then finally when it's time to get out. Yes, we use stop losses. Yes, we use take profits. But I know from my experience personally, it's very rare that I actually get my full stop loss hit. I'm usually out of the position prior to those levels. This all falls under money management, which is by far the most important aspect of your trading ability that you need to understand. We are money managers as traders. When we are risk on, we have money live in the markets. It is our job to manage it accordingly. Win or lose, the success comes down to if we are managing position and risk correctly. Now, this blog is a little bit more directed to our day traders or people who are constantly having positions with the whole idea of set stop losses and take profits. For investors, it does differ a little bit and I'll touch on that now. When it comes to buying a stuck or an asset, it is very easy come up with a trade idea. You find the idea, you buy, simple. What makes it really difficult is actually finding the appropriate time to sell. That's what actually makes the good investors. Because equity, yes, it is still extra cash in your pocket, but you don't get that cash actually in your pocket until you have hit that sold button and realized your profits. My biggest outlay to anyone in any type of investing is have an exit plan prior to entry. Have a minimum requirement, have a maximum requirement, and what to do in those scenarios. I've seen it many many times before, especially with the recent cryptocurrency boom that people just get in expecting it to go up with no exit strategy, so they never exit because it's constantly moving up. Then, Unsurprisingly, the market pulls it back in and they lose all of their equity profit. They find themselves trying to close out of their position before it's a big loss. Always have an exit plan. Now lets dive back into more of the day trading market. When it comes down to exits of the market. Most people use stop loss orders or take profit orders. These are orders you can set on your brokerage platform, which essentially, when that asset reaches a certain price, the server will read that and automatically pull your position at your requested price. These are the most common ways to manage risk. It's a very beginner friendly. It's very easy to find an area where to put your stop loss, put your stop loss, put your take profit, walk away and let the trade unfold. However, today, let's get a little bit more advanced. There are a few questions you need to ask yourself prior to entering a position. Regardless of looking at the profit potential (which is the biggest pull). Start associating yourself with the risk you are taking in order to open this position. The first question I want you to ask yourself is, how much are you willing to risk on this trade? Risk is an important factor when investing right to determine your risk level. You need to understand what is not going to affect or hurt you, but still generate enough profits to make it worthwhile in your eyes. Finding that medium balance of what you can handle when you go and drawdowns is going to be highly beneficial to risk the right amount and not go emotionally insane every time you're in a position. Once you understand what dollar value you're willing to risk, then you just position size accordingly and have a stop loss on your chart and there you will know your maximum risk. That is what you are going to lose if all goes against you on this position. Once you have the basic understanding of how much you're risking per position, you want to try and avoid hitting that stop loss at all costs. So while you're managing your position (this is something I like to do personally) if everything is going against you, it's usually a sign that it's going to continue that way. Yes, statistically, there's going to be sometimes it may be reverses. That's the beauty in backtesting your strategy so you have an in-depth understanding on what it is capable of. I look to start scaling out of my position, which means selling off my position size as we move towards the stop loss. As I mentioned above, it's very rare that I actually hit my Max loss stop loss statistically. Looking back at my journal, I've actually scaled more than 75% of my position out prior to hitting a full stop loss if not all of the position. This is giving me an incredible advantage when it comes down to statistics, because while I can still hit a full take profit and a full position in profits. But I am not hitting a full loss, so my risk to reward has actually rapidly increased, even though it's still very similar when I'm entering the trade. The second question I want you to ask yourself is, where do you want to get out? Where is your take profit? Where is your stop loss? But also look within those areas where realistically are key indications on where this price is going to move. Do you have to get through four or five support levels to reach your take profit? Should you start looking at scaling out some of the position in the profits around those levels? The more you have to go through, the harder it is going to be to actually achieve the profit. Have an exit plan. Where are the levels you want out? And finally, and this is probably the biggest one, how long you are planning on being in the trade? If you're trading down on the five minute chart, do you really want to hold this trade for two days? If it takes that long, do you only want to be trading during this market hours? Where do you want to cut this trade? This is really important because most people, especially the set and forget traders, they don't have a time limit on their trades. They allow it to just run over multiple sessions. But The thing is, the longer it runs, the less than analysis becomes true. Have a look at the time frame you're trading. If you're investing, look at the yearly outlook. How long do you really want to be holding this stock before it actually does something? I know we're not options traders. Some of you, maybe, but it is a good idea to have kind of a time scheme that you don't want to be holding any longer than. I personally look to start scaling out of the position, taking risk off the longer the trade takes, especially if I'm trying to trade on volatility. These are three questions to ask yourself and a little bit of tips and tricks when it comes down to scaling an managing risk on a more advanced level. Remember, as traders and investors, we are risk managers. We are money management specialists. Our job is to not lose money. When we stop losing money, profits will come in. Focus on your risk, focus on what you can afford to lose, and then focus on your positions and try and stop yourself from ever hitting that Max stop loss that you give yourself. I wish you all success! -Jordon Mellor
Education
by the5erstrading
8
USOIL BUYCONFIRMATION - Found a nice consistent 3 retracements which end up resulting in a buy position. A couple things can happen either I'm right and the buy was a good trade or the market is trying to fake me out when in reality a sell is the right trade. - Price is bounce off of one of the prime fib numbers 38.2 - Double bottoms are forming - Looking for a shooting star candlestick to confirm buy entry. - Price is officially over my 50 moving average which is a possible indicator of a buy position. - Set my stop loss under previous support - Set my take profit at my golden 61.8
FX:USOILSPOTLong
by KairosTrades
PETRONET has retested , and showing BULLISH movement hey guys , PETRONET stock has shown signs of bullish movement this stock was moving in a fixed downtrend , and first also , this stock has crossed it's resistance , but was not able to stand there for a long time , and it lead to BULL TRAP for traders , and after that , this stock has again crossed it's resistance, and now retested. There are several reasons to buy this stock ; 1. A LONG GREEN CANDLE IS MADE 2. THIS STOCK HAS RETESTED AND TAKEN SUPPORT ON IT'S RESISTANCE 3. MORNING STAR HAS BEEN MADE BY THIS STOCK due to these reasons , i suggest you to buy this stock and earn high returns , I have marked the TARGET and STOP LOSS for y'all, the RISKREWARD RATIO is 1:3 BUT PLS CONSIDER THE GLOBAL MARKET SITUATIONS; 1. INFLATION 2. WAR 3. RISING BANK RATES 4. INCREASED EXPORT DUTY ON CRUDE OIL AFTER CONSIDERING THESE SITUATIONS YOU CAN BUY THIS STOCK PETRONET 😀😀
NSE:PETRONETLong
by TRADERS_AREA
DR REDDY LABS , has crossed it's ASCENDING TRIANGLE pattern hey guys , DR REDDY LAB , stock was moving in a downtrend from a long time, but now , this stock was moving in a fixed pattern called ASCENDING TRIANGLE PATTERN at present , this stock has crossed it's RESISTANCE and taken SUPPORT as you can see that , on previous day , this stock has made a long GREEN CANDLE and today , this stock has made a candle called DOJI which has taken SUPPORT on its RESISTANCE THERFORE , in my opinion you can buy this stock and get high returns , I HAVE MARKET THE TARGET AND SL TO MAKE IT EASY FOR Y'ALL BUT PLS CONSIDER THE GLOBAL MARKET SITUATIONS 1, INFLATION 2. WAR 3. RISING BANK RATES 4. RISING DUTIES OF CRUDE OIL EXPORT AFTER CONSIDERING THIS SITUATION YOU CAN BET ON THIS STOCK DR REDDY LABS 😀😀
NSE:DRREDDYLong
by TRADERS_AREA
BTC capitulation?, Long19.2k-17.5k for max pain capitulation on this downtrend. good buy zone for spot long-term portfolio ~16k-23.5k taking into account feasible scenarios of could go. Though,16k-17k will put BTC literally down to the wire of max pain, and maybe create a generational bottom. w/ institutions being more public in their interest w/ BTC I suspect more ranging for a long time ~20k-37k. Mean rev. indicators are printing a good bottom so far today, but not yet confirmed w/ BBWP not crossing over its MA. VZO indicator also printing green. I'd only consider BTC to be out of a bear market until it closes over ~38k on a daily candle, so if you want to be giga-safe I'd wait for there. Breaking out of 32k gives some confidence of an uptrend, but thats only if we continue going up from here. Have some self-control and try not to capitulate. Fundamental market risk factors are noted here thanks to WifeyAlpha. Only would add that there are a lot of put options expiring this Fri./June 17th on SPY that could squeeze tradFi for part 2 of a bear market rally, so hedge your open shorts. That and monkeypox, which falls under the currency wars. Trying out 5R trades instead of the safer 2R, I have two of them out JIC the #1 gets stopped out Trades: #1 Entry: 21.6k SL: 18.3K TP: 39k #2 Entry: 17.5k SL:15.2 TP:29k
CME:BTC1!Long
by linebands
Risk:Reward Ratio. What is it?Risk to reward ratio. What is it? What does it mean and how do we use it? Now, if you made it to the point where you're here on TradingView, there's a good chance that you have heard about Risk to Reward ratio. Today, I want to dive into what it really means and how to actually utilize it. I see so many beginners missing out on huge profits and opportunities because of their risk reward ratio and I want to share my knowledge of this tool and how to actually use it in the future. Firstly, let's dive into what is the risk/reward ratio? The RR ratio is a tool that can accurately predict by expected returns based off of previous results. This tool measures how much reward you are estimated to gain based off of the dollar amount you risk. For example, if you have a risk to reward ratio of 1:3, it means for every $1 you risk, you will gain a return of $3 in the event of a positive trade. Using the same example in the FX market, let's say you're risking 10 pips on EURUSD, your take profit is at 30 pips. This means you gain 30 pips in the event of a win, lose 10 pips in the event of a loss, giving you a 1:3 risk/reward ratio. This is a very powerful tool because compared with the win rate and in correlation, you can actually predict based off of your previous results, you're expected returns on investment. Being able to predict what you're expected returns are are great way of giving you milestone targets, but also when you're looking at getting funded with prop firms, you also know what you are actually able to achieve in what time frame. Now, it goes without saying, the higher your risk to reward ratio, the less you need to win in order to maintain profitability. The opposite, the lower your risk reward ratio, the higher win rate is required to maintain profitability. But this is where we get into where I find beginners struggle. A lot of people will base their strategies on their risk/reward ratios, which is understandable if you're building the strategy from scratch. If you're using a prebuilt strategy or something that doesn't really correlate with risk/reward ratio. Then it makes it obsolete and just confusing. Going back to my first point, risk to reward ratio is a tool that you can use to estimate future potential returns based off of previous results. Let's say you have 100 trades worth of data. You can accurately have a look at what is your risk to reward ratio is and compare that with your win rate. From there you can make a decision whether or not that is a profitable strategy. On top of that, you can then start to look to improve either your win rate and risk to reward ratio, knowing that that is an area that needs improvement. When it comes to improving your risk to reward ratio, one thing that always grinds my gears with traders, is when they enter a trade, they'll set their stop loss and take profits based on their risk to reward ratio not based on the actual analytics of the trade. While I understand this and with some strategies, this can work. For most, they end up setting those take profits in areas that is just realistically is going to be really hard for the price to get to. What professionals do when trying to improve the risks of reward ratio is only take those setups where a good take profit is viable around that level of risk to reward. For example, in this chart, we are looking at buying the USDCAD over the next couple of weeks. We like this setup. We've had our entry signal and we're going to place a stop loss below that recent low, which was created early last week. We are not happy with our risk to reward ratio. We think we're leaving too much profit on the table and want to increase our overall results. So I'm only taking trades that have close to a three to one risk to reward ratio. But as you can see by this chart that dotted lines are areas of resistance which we are going to have to break in order to achieve that level of profitability. There are 5 different zones we are going to have to get through in order for my take profit to be hit, it is fair to say the odds are not in my favor. Now a beginner Trader will still enter this trade with the same take profit and the same stop loss and just hold on. The reason they'll do that is because they want the 1:3 risk reward ratio. They don't care where the profit target is. What matters is it is 3 times worth what they're risking. On the other hand, A professional trader will actually either let this trade go and not enter it, or look for another entry point later on on smaller timeframes to where you can fit that risk to reward ratio and you're not going to hit the high levels of resistance. To sum up what my point is, risk to reward ratio is a very powerful tool to understand what you are capable of the trader and also where you can improve. It is not a valid take profit selection strategy. Yes, it can definitely help with guidelines on where to set your take profit, but it should not be the sole reason your take profit is set at a certain price just because it is X amount whatever you are risking. Have a look at what the chart is telling you and what your analysis is telling you. Then, only take the trades which coincide with the risk to reward ratio. You want to achieve. I hope you enjoyed this insight and I hope it was beneficial to you. I recommend highly diving into your previous trading data. Have a look at your win rate. Have a look at your risk reward ratio and understand what your profitability expectation really is and base your future decisions off of that data. Have a fantastic trading we can I look forward to seeing your comments. - Jordon
FOREXCOM:XAUUSDEducation
by the5erstrading
5