#### Agent86

##### Sergeant

- Messages
- 195

Hi all

Bored so I'll post something for new traders

I feel this is the most important subject to new traders.

Equity Management Money Management Risk Reward are some terms used.

Consider this:

Assuming you understand what a stop and target is; and what a risk/reward ratio is.

If you risk lets say 1:2 or some refer to it as 2:1

I still don't know which is proper, but anyhow lets use 1:2 risk/reward ratio

Consider you place a trade with a 1:2 ratio

Lets say on a 5min chart you see a trades that could produce a potential trade of 10pips/20pips which means you will risk 10 pips to get 20 pips or more

Anyhow, in this example lets say you traded a mini lot which has a pip value of $1 per pip.

In this case 1 mini lot would produce a risk of $10/$20 in our example

Consider if you lose 5 times and win 5 times

You would have lost $25, but won $50 and ended with a $25 profit

In other words you lost 5 times worth $5 for a total of 25$

Won 5 times worth $50

Total profit of $25 after being wrong 50% of the time

So in this scenario you would have been wrong a lot

If you trade lets say .2 lots or micro lots which hold a pip value of $1 per pip.

You might have gained $50 instead of $25 on only a 50% probability

Anyhow if you develop even a strategy that is right only 50% of the time or even slightly less you can still produce a profit when using a good risk/reward ratio

Now all you have to do is work on your strategy or use someone elses and incorporate the probability into what you think is a safe risk/reward for you.

Some trade even 1:3 or even 1:4 which could be less probably however, might produce more pips and actually have a lower probability of winning could even be as low as only 20% right and still end up in nice profits.

Anyhow thats just one way of looking at Managing your trades.

Happy trading.

Bored so I'll post something for new traders

I feel this is the most important subject to new traders.

Equity Management Money Management Risk Reward are some terms used.

Consider this:

Assuming you understand what a stop and target is; and what a risk/reward ratio is.

If you risk lets say 1:2 or some refer to it as 2:1

I still don't know which is proper, but anyhow lets use 1:2 risk/reward ratio

Consider you place a trade with a 1:2 ratio

Lets say on a 5min chart you see a trades that could produce a potential trade of 10pips/20pips which means you will risk 10 pips to get 20 pips or more

Anyhow, in this example lets say you traded a mini lot which has a pip value of $1 per pip.

In this case 1 mini lot would produce a risk of $10/$20 in our example

Consider if you lose 5 times and win 5 times

You would have lost $25, but won $50 and ended with a $25 profit

In other words you lost 5 times worth $5 for a total of 25$

Won 5 times worth $50

Total profit of $25 after being wrong 50% of the time

So in this scenario you would have been wrong a lot

If you trade lets say .2 lots or micro lots which hold a pip value of $1 per pip.

You might have gained $50 instead of $25 on only a 50% probability

Anyhow if you develop even a strategy that is right only 50% of the time or even slightly less you can still produce a profit when using a good risk/reward ratio

Now all you have to do is work on your strategy or use someone elses and incorporate the probability into what you think is a safe risk/reward for you.

Some trade even 1:3 or even 1:4 which could be less probably however, might produce more pips and actually have a lower probability of winning could even be as low as only 20% right and still end up in nice profits.

Anyhow thats just one way of looking at Managing your trades.

Happy trading.

Last edited: Apr 5, 2010