This article about reward to risk has a table and video so don’t miss those below. Reward to Risk ratio is one of the great principals in trading that can greatly increase profits.The reason that this will increase your profits is because your winners are much bigger then your losers and over time that will add up to much bigger profits. If you have the discipline to increase your average win on each trade then it will take that many more trades that you can lose to get back to break even.
One important statistic that I think each trader should calculate is the average win and the average loss. It is also important to keep trade of your actual trading win percentage. To determine the average winning trade all you have to do is To calculate the average of 5 trades take the five trades 80, 95, 100, 77, 90, and add of the 5 scores. The total of the five trades total is 442. Then calculate the average of the 5 trades by taking the total of 442 and dividing that number by five giving you an average winning trade of 88.4. To calculate losing trades do the exact same thing. This is an important stat to look at because if you can see that your losers are bigger then your winners you know you have a problem and need to make some adjustments.
Look at the table below to see how the winning trades keep stacking pips in your favor. This is based on if you keep your stop loss the same at 25 pips on each trade.
Trade Stop Loss 25 Pips on each trade |
Trades to Break Even |
Total Pip Count |
Trade won +50 pips | Now you have 2 losers to break even +50 | 50 |
Trade won +125 pips | Now you can have 6 losers to break even + 175 | 225 |
Trade lost -25 | Now you still have 5 losers to get back to break even | 200 |
Trade lost -25 | Now you still have 4 losers to get back to break even | 175 |
Trade lost -25 | Now you still have 3 losers to get back to break even | 150 |
Trade won +350 pips | Now you have 9 losers to get back to break even | 500 |
Winning % = 50% | ||
Here is a great article that I recommend your read about money management right now.
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Winnerâ€™s Edge Trading, as seen on: