The purpose of this post is to show you guys the importance of risk reward ratio in trading.
In the screenshot below, you can see the 5 trades that I have taken for the user of my trade copier service on the 6th Feb 2018.
If you take a look at the loss vs the win, you can see that the win is at least double the loss and this means that those trades has a 1:2 risk reward ratio.
Most of the new trader think that the winning percentage of a strategy is the most important. In fact, it is the risk reward ratio of a strategy that is the most important.
If you have a strategy that has a high risk reward ratio, it means that your one win can withstand a few losses. There are times where I can get 1:4 risk reward ratio as the trade has a stop loss of 25 pips and target profit of 100 pips.
With such a trade, you can withstand 4 losses with 1 win.
For example: If you have a strategy that has a risk reward ratio of 1:3 which means that you set the stop loss at 25 pips and target profit at 75 pips.
Let assume that the winning percentage is only 50% and you take 20 trades for the month
Profit = 10 trades x 75 pips = 750 pips
Loss = 10 trades x 25 pips = 250 pips
Even for a strategy with only 50% winning percentage, you are making 500 pips profit with it and all these is made possible with the high risk reward ratio.
That is why I advice all of you out there to only trade strategies with high risk reward ratio as this is the only way you can be profitable every month in trading.
This is also how I stay profitable every month without failed since 2009.
Do feel free to email me at [email protected] if you have any question