Weekly Lessons

Risk Reward: The Practical Way

February 21, 2019

Choosing a risk/reward ratio before trading is an important move every trader should take.

What is a risk reward ratio?

Kung sisimplihan natin ito yung ratio ng e risk mo sa kabalik na reward. Kunyare uutang sayo kaibigan mo na si Sandra ng 50k at ibabalik nya sayo eh 55k after a month. Medyo mapapaisip ka nun at medyu aayaw kasi mag ririsk ka ng 50k with only 5k to gain but if uutang naman si Anthony sayo ng 50k at ibabalik nya sayo 100k after a month eh papayag ka kasi doble kita mo so thats 2:1 risk/reward ratio.

A chance to earn 100k with a risk of losing 50k. Kapag 150k naman ang offer ay 3:1 (3 is to 1) na ang ratio. Ok, medyo clear na sa ratio. I’m not here to dig deep sa ganun. Nasa net naman yan pwede nyo masearch by yourselves.

Every trader should choose a risk/reward ratio that he feels comfortable with. Always bear in mind that every trade carries a certain level of risk and trading success is all about making as much as you can when you are right and losing as little as possible when you are wrong.
Now, let’s take this chart for example. 1.45 ang support price niya at 1.70 yung resistance. As of writing nasa 1.48 sya nagclose. If you go sa pse tools kasama sa indicator yung support at resistance so all u need to do is e click sya at automatic na magpplot. Ok so na establish nya yung support at resistance. Lets assume major support ang 1.45 at ilang beses di nabreak. Ganun din ang 1.7. So if you entered at current price which is 1.48 you are risking about -2% plus tax and fees kapag bumalik ito sa support while you have the chance to earn 14% minus tax and fees kapag umangat ito sa resistance.

So whatever trade you take. Whatever strategy you use always nyo tandaan na dapat mas malaki yung e gain mo kesa chance mo ma loss. Now kapag naman pumasok ka sa 1.66 na price mas malaki ang e loss mo kapag bumalik sa support price kesa e gain mo kapag umangat sa 1.7.

Yan ang pinaka practical na way of looking at it. Hindi kasama here yung breakouts at breakdown kasi you will have new levels of support at resistance when that one happens. S0 just try to bear this in mind lang as you trade. It will save you from some bad decisions along the way.

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