Are you looking for a good risk to reward trade?
After all, who doesn’t like to risk $1 and make $5, right?
But the funny thing is this…
You can have a good risk to reward trade, risking $1 to make $5, and still lose money.
You can have a poor risk to reward trade, risking $1 to make $0.5, and still profit.
Now you’re wondering:
So what is it that decides whether you’ll be consistently profitable in the long run?
Watch this video below to find out:
I hope you’ve enjoyed this week’s video post. As always, comments are welcomed and encouraged. Cheers!
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great video Rayner! hope to see u release a video soon about calculating the probability of a trade
Great to hear from you again.
To calculate the probability of your trade would have to be based on your own trading records.
E.g. After 100 trades, you had 50 winners, that’s a win rate of 50%.
Can you recommend a great online trading journal that can decipher this from our trading records? I hear Tradervue is really good but it is $20-$50 dollars a month for life for the packages; although, there is a free package but with limited features.
You can try Edgewonk at http://www.edgewonk.com
Thank you dear Rayner!!
This is the most clearer post about this subject I’ve ever read in the internet.
Glad to hear that dear Shlomi! 😀
I currently have a spreadsheet to do these calculations, average gains, average loses, win rate and lose rate, the thing is that there is some additional ingredient, I believe you as an experienced trader need to learn to evaluate and I think that is the quality of a setup with the R/R you estimate on it, I believe that there are trades that actually can offer high probability of high R/R and some others trades that don’t have good quality to have high R/R. Same happens with low R/R trades, some will have better quality and some others don’t. This is the craft in trading, to evaluate the combination of both R/R and probability of win rate at the same time BEFORE the trade. Once you review your results after the trade is just statistics and sure you can learn something about those trades and try to repeat them, but since the dynamics of markets are not stationary even that strategy can fail, I have found that one of the biggest strengths on any trader is to play good defense, and this means learn when not to trade on non favorable conditions, trying to make money on bad quality conditions, set ups, stocks, will evaporate your hard earned profits, I think R/R win rate % is important, but once you understand it the next problem is really being honest with you on taking trades that really worth it or stand on your hands, again that’s been my next problem on my case, hope this helps others
I would say different traders would have a different interpretation of their setups.
Some may choose to avoid lower quality setups, whereas some may choose to risk smaller on these setups.
Still, thanks for sharing your thoughts.
Hi Raynor great video. When doing your win ratio do you discount the break even trades. For example 40 wins 10 break evens and 50 losses. whats your win rate. 40%? thank you
I don’t have many breakeven trades because I don’t tend to shift my trades to BE.