# Calculating Risk/Reward in SB trades

#### rjay

##### Active member
122 0
Now that I seem to finally be winning more than I'm losing I thought I'd better start looking at Risk to Reward ratios. What is the best way of evalutating our risk in a SB trade ?? For example, when I trade the FTSE Daily with Capital Spreads, I require £40 in the bank but their auto stop is set at 80% of the bank. If the trade starts to go pear-shaped I'm going to close it before it hits the stop, so exactly what is my risk here (for the purposes of comparing risk to reward) ?? How do others here evaluate it ??

#### TheBramble

##### Legendary member
8,395 1,170
Rjay - your risk with your SB is Spread + Stop (mental stop if the controlled risk stop is too far out).

So if the spread is 10pts and your mental stop is 25pts, your risk is 35pts. Simple.

As for reward, you have to assign expectation of profit for yourself. Fibs, support/resistance, pivots, round points, magic numbers - whatever your using - you have a target value.

#### axthree

##### Active member
185 0
Interesting post The Bramble,
Personally, I don't touch the dailys unless I'm at the screen for the duration.
My preference is to use futures even if I'm looking for a short term profit.
Many of my losses have been from setting my mental stop too close and if you have too many of those....

#### TheBramble

##### Legendary member
8,395 1,170
Ax3- I was responding to RJ's post on risk:reward calculations.

As for dailies/futures - you're right - setting a mental/real stop too close can be a danger to profits - just as setting it too far away can!

It's a personal call on stops. As posted recently elsewhere on whipsaws, one person's noise is another's stop trigger.

Your risk tolerance (or risk:reward envelope) dictate the amplitude of your noise filter.

I used to make the mistake of factoring in local volatility into my risk levels - i.e. on 'busy' days where there was larger than average movement, I'd widen my stops. Took me a while to realise how stupid that was.