# Risk Reward Ratio and another idea

Hey all

Newbie to the game here, currently on a demo account, but considering going “live” soon.

I spent some time in the chat room the other day discussing risk to reward ratios. I am currently working on a 1:2 basis, so in one trade say, I will set my Stop Loss so I don’t lose more than £20, and my Take Profit £40.

I understand using this concept if you profit just 1 in 3 trades, you break even.

I was thinking today about other possible ways to look at it, and one thought that came to my mind was roulette. As some will know, some people use a system (the name escapes me and I cant be bothered to google it), whereby you play on the “Evens” areas such as Red and Black, and for each time you lose, you double your stake next time. So, if you put £10 on red, and it loses, the next time you put £20 on. If that wins, you have spent £30 but got £40 back.

So, my thought was, what if you did this with trades. So, set your SL, and TP at the same amount of pips/money, if that trade doesn’t come off, you double the amount you put on your next trade.

This is just a thought I had, and I don’t recommend it, or recommend against it, just wanted to canvass opinion!

The problem with both ideas is that while you might get lucky for a while, eventually you’ll have a losing streak that will blow you up.

The strategy you describe is called a Martingale system. You can read all about it here: Martingale (betting system) - Wikipedia, the free encyclopedia

or Google that term for more sources.

A martingale requires plenty of capital for it to work even if you start with 0.01 lots. Just do the match and double up for 10 times.

[QUOTE=“Rambo35;690984”]A martingale requires plenty of capital for it to work even if you start with 0.01 lots. Just do the match and double up for 10 times.[/QUOTE]

For martingale to be successful it requires unlimited capital.

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my risky ratio is 2:1 reward: risky. it is great we can make more money with this. when we won a positon we can lose in 2 order. we need slow dow how to do not lose 2 order . we can make money and keep profit in our account

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Having a risk reward equal to 1:2 on average is a excellent money management strategy. However, u need to understand that you must only enter trades that actually have a 1:2 potential. For example, if you find a good entry and short gold at 1200, and u find a logical stop loss at 1230 (stop loss is always dictated by market structure, don’t decide it yourself), then u must see if you can clearly have the price falling to 1140. If you have a Key support at 1170 for example, this trade doesn’t really have a good risk reward potential so u might leave it alone.

On the other hand, you may also want to take this trade because u feel it will still give u 1 times the profit. If you feel your trade signal and the trend are extremely strong, you may go for this 1:1 trade, but please don’t make that a habit for every trade. In the long run, and over a series of trades, you must aim for a 1:2 risk reward at least. Otherwise, your account may not grow overtime.

Never compromise on your logical stop loss level. If 1230 is the logical stop loss in the above example, never scroll the SL downward to 1215 , for example, just to get a better risk:reward ratio on the trade. This will leave u in an utter emotional mess, as ur subconscious knows the logical sl to be about 1230, so this will result in you moving the stop loss up and down and messing ur trade and psyche.

One good way to improve your risk: reward ratio in the above example is to let go of your entry signal at 1200, and wait for the price to retrace up to around 1215 and give u an entry signal there. Or put a sell limit entry at 1215. If the entry at 1215 is triggered, your stop loss is at 1230, and if the price falls to 1170, you get 3 times reward. If there is no support at 1170, and you are aiming for 1140, and if price indeed falls to 1140, you get 5 times the reward In this case.

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Folks, talking about R:R ratios is completely meaningless if you don’t also talk about Win %. A 2:1 ratio may sound great, but if you lose on more than 2 out of 3 trades, in the long run you’ll go broke. Similarly, a 1:1 ratio may not sound very exciting, but if you’re winning on 60% of your trades you’ll do great over time.

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Yes, I missed discussing the winning to losing percentages. We are discussing risk reward ratios and money management, and I assume that the trader has their own trading strategy with which they are satisfied and winning let’s say, about 50% of the time. If you maintain a strict risk to reward ratio of 1:2, then even if you lose 60% of your trades, and win 40%, your account will still grow. You can do the maths. If you win 50% and lose 50%, you are even more better off .

In my experience I feel most people tend to talk a lot about “winning percentages”, and “consecutive wins” much more than they talk about risk:reward ratios. A statement such as " I have a 90% winning ratio" is usually a marketing/advertising tactic, and it doesn’t mean much unless you know what sort of risk/reward strategy the trader is practicing. Even a trade that wins \$0.5 in a \$100,000 account is a winning trade. If you win 9 out of 10 trades, with the 9 trades giving you \$100 of profit collectively, and the loser taking \$1000 away from you, then your winning ratio is not doing you any good.

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we can use ratio 1:1 or 2:1 . we will have more change with ratio 2:1 2 reward and 1 risky. each trader should be use 2:1 with long stoploss and profit . we can get more chance with each profit.

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R:R > winning %

Example:

3:1 RR or better + 30% winning percentage or better + strict risk management= profit

I think if you set it 1 to 1 you might win more trades.

I think if you set it to 1 to 1 you might lose more trades…

Still trying to find how I set and adjust my RR ratio on MT4? Don’t see it in the terminal, navigator or in the bars at the top of the chart.

If I can set it to something like 1 to 10 I’ll have huge winnings!!

All help would be greatly appreciated!

KC