Risk/Reward Calculation For a Trade

MktScape

Junior member
21 0
Risk/Reward Calculation For a Trade?

Hi Guys,
I was working on to understand the mechanics of calculating the R/R ratio for a particular trade. I came across the following article:
Analysing risk to reward ratios in your trading

Though the writer has given a good example however I am unable to produce the same figures as the author. I am using excel spreadsheet to do the calculation. I am trying to upload my calc sheet but it is failing to upload for some reason.

In the mean time if someone can please have a a look at it and advise how to calculate it accurately, I'll appreciate it.

Thanks
 
Last edited:

nartec

Junior member
18 0
First you need to establish your equity management rules.
1. What % of your trading account are you prepared to risk on any trade(s) - I recommend 2 - 5 %
2. How much in dollars are you comfortable to risk per lot traded - I recommend $30 - $50 max.
3. What is your risk to reward ratio - I use 1: 1.5
note: my rules are based on a "base 10" account
Your stop/loss is always set first. if you are unable to set your stop/loss within your equity management rules then you wait for the next opportunity.
If your platform has a "trailing stop" function then you can apply these rules very simply.
If you trade from candle formations let me know and I will create a screenshot of a set-up for you.
This is just my humble if somewhat biased opinion.
 

TheBramble

Legendary member
8,395 1,170
I was working on to understand the mechanics of calculating the R/R ratio for a particular trade.
Risk:Reward

Often incorrectly given in the format Reward:Risk.

Either way, it's the ratio of the amount you are risking to the amount you expect to profit by, if it hits your target.

If you’re willing to take a 25 pip loss on a trade that you believe is potentially going to make you 100 pips it’s 25:100 or 1:4. You can do the math I’m sure.

It's not the most useful statistic. As are any of them really. Even expectancy which is widely touted only serves after a statistically significant number of trades and few traders ever get to make a statistically significant number of trades. Either because they’re out of the game too quickly or they change their trading strategies and methods too often for any statisitical assessment to be valid.

Don’t get hung up on that stats: they’re an excellent diversion from pulling the trigger.
 

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