Hey Fixers!
It’s been a while since I posted some content here on the forum so I thought I’d give you some valuable info on trading in general, not just crypto. What I’m about to tell you can make the difference between losing all your money or being consistently profitable.
I’ve been running affiliate campaigns for a couple of years and got lucky buying and selling Bitcoin at the right time. Since then I’ve been day trading and traveling the world.
Obviously there’s lots of stuff to learn if you want to be a profitable trader, but today I would like to show you something called reward vs risk. Grasping this concept will drastically improve your odds.
Reward vs Risk Ratio
Whenever you enter a trade you should plan your entry, take profit target and stop loss. Your entry is your buying (long) or selling (short) price. Take profit is the price where you close your trade to get your money out of the market and stop loss is where you close your trade when it moves against you. This is where you cut your losses short.
And that’s where reward vs risk comes in. Trading is all about cutting your losers short and letting your winners run.
But what does it mean?
Simply put, investing money into the markets has a high degree of risk, and you should be compensated if you're going to take that risk. If a stranger asks for a $50 loan and offers to pay you $60 in two weeks, it might not be worth the risk, but what if they offered to pay you $100? The risk of losing $50 for the chance to make $100 might be appealing.
See where I’m going with this?
That's a 2:1 reward/risk, which is a ratio where a lot professional investors start to get interested because it allows investors to double their money. Similarly, if the person offered you $150, then the ratio goes to 3:1.
Reward Risk Ratio Formula: RRR = (Take Profit – Entry ) / (Entry – Stop loss)
(and vice versa for a sell trade)
When you know the reward:risk ratio for your trade, you can easily calculate the minimum required winrate (see formula below).
Why is this important? Because if you take trades that have a small RRR you will lose money over the long term, even if you think you find good trades.
Minimum Winrate Formula: Minimum Winrate = 1 / (1 + Reward:Risk)
Example 1: If you enter a trade with a 1:1 reward:risk ratio, your overall winrate has to be greater than 50% to be a profitable trader:
1 / (1+1) = 0.5 = 50%
Traders who understand this connection can quickly see that you neither need an extremely high winrate nor a large reward:risk ratio to make money as a trader. As long as your reward:risk ratio and your historical winrate match, your trading will provide a positive expectancy.
So if you only win 1 out 3 trades and your with a RRR of 2:1 you’re breaking even. Anything above that is making you money!
Hope you guys can see how powerful this is.
Shameless plug: Check the link in my signature for an epic trading guide (it’s free)
Let me know if you want more of this stuff ...
It’s been a while since I posted some content here on the forum so I thought I’d give you some valuable info on trading in general, not just crypto. What I’m about to tell you can make the difference between losing all your money or being consistently profitable.
I’ve been running affiliate campaigns for a couple of years and got lucky buying and selling Bitcoin at the right time. Since then I’ve been day trading and traveling the world.
Obviously there’s lots of stuff to learn if you want to be a profitable trader, but today I would like to show you something called reward vs risk. Grasping this concept will drastically improve your odds.
Reward vs Risk Ratio
Whenever you enter a trade you should plan your entry, take profit target and stop loss. Your entry is your buying (long) or selling (short) price. Take profit is the price where you close your trade to get your money out of the market and stop loss is where you close your trade when it moves against you. This is where you cut your losses short.
And that’s where reward vs risk comes in. Trading is all about cutting your losers short and letting your winners run.
But what does it mean?
Simply put, investing money into the markets has a high degree of risk, and you should be compensated if you're going to take that risk. If a stranger asks for a $50 loan and offers to pay you $60 in two weeks, it might not be worth the risk, but what if they offered to pay you $100? The risk of losing $50 for the chance to make $100 might be appealing.
See where I’m going with this?
That's a 2:1 reward/risk, which is a ratio where a lot professional investors start to get interested because it allows investors to double their money. Similarly, if the person offered you $150, then the ratio goes to 3:1.
Reward Risk Ratio Formula: RRR = (Take Profit – Entry ) / (Entry – Stop loss)
(and vice versa for a sell trade)
When you know the reward:risk ratio for your trade, you can easily calculate the minimum required winrate (see formula below).
Why is this important? Because if you take trades that have a small RRR you will lose money over the long term, even if you think you find good trades.
Minimum Winrate Formula: Minimum Winrate = 1 / (1 + Reward:Risk)
Example 1: If you enter a trade with a 1:1 reward:risk ratio, your overall winrate has to be greater than 50% to be a profitable trader:
1 / (1+1) = 0.5 = 50%
Traders who understand this connection can quickly see that you neither need an extremely high winrate nor a large reward:risk ratio to make money as a trader. As long as your reward:risk ratio and your historical winrate match, your trading will provide a positive expectancy.
So if you only win 1 out 3 trades and your with a RRR of 2:1 you’re breaking even. Anything above that is making you money!
Hope you guys can see how powerful this is.
Shameless plug: Check the link in my signature for an epic trading guide (it’s free)
Let me know if you want more of this stuff ...
