Agent86
Sergeant
- Messages
- 194
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.
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