Archives of “lt” tag

rss

Risk Vs Reward

  
  Education
#  #  #  #  #  #  #  #

Risk is a part of trading. Every trade carries a certain level of risk. Every trader must know the amount of risk that is being assumed on each trade. Knowing the amount of risk on each trade is one way to limit it and to protect your trading account. The best way to know your risk is to determine the risk-reward ratio. It is one of the most effective risk management tools used in trading.

The risk-reward ratio is a parameter that helps a trader to determine the level of risk in a trade. It shows how much a trader is risking versus the potential reward (or profit) on a trade. While this may seem simplistic, many traders neglect taking this step and often find that their losses are very large.

The minimum risk vs reward ratio for a good forex system should be 1:2, however a larger ratio is always better.

How to determine the risk vs reward ratio?

<!–[if !supportLists]–>1.       <!–[endif]–>Determine the amount of risk for the trade. This is equal to your entry price minus your stop loss price or potential exit price.

<!–[if !supportLists]–>2.       <!–[endif]–>Determine the potential reward on the trade. Based on your analysis or system, the potential exit price minus your entry price is your reward.

TRADING IS SIMPLE. IT’S JUST NOT EASY

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

How could two phrases sound so similar, but yet be so different?

I think we need to look differences between the context of each phrase.

When I describe the idea of trading being simple, what I really mean is that itshould be effortless. The word effortless is defined by Merriam-Webster Dictionary as:

showing or requiring little or no effort <effortlesspower>

I believe that good traders are able to trade the markets effortlessly – it’s simple to them. But getting to the point of doing anything effortlessly is noteasy. In fact, it’s really hard. A good analogy would be describing an athletes ability to perform his or her skill. If we took two people – one being a person who runs two miles everyday versus a person who hasn’t ran for the past two months, who will have the easier time running one mile? The answer is simple of course. The person who runs everyday will be able to run one mile easily – it will be effortless to them. However, the person who hasn’t ran in two months will find it extremely hard to and likely have to take breaks in-between so that he or she can finish. (more…)

Go to top