Thursday, 24 November 2011

How to Use Risk-Return Ratio

How to Use Risk-Return Ratio

What is the best Risk-Return Ratio? The largest of course! But the minimum Risk-Return Ratio absolutely necessary will vary for each trader. To determine the Risk-Return Ratio that will increase your profitability, ask yourself this question:

What percentage of the time are my trades successful?

If your answer is 50%, you only need a Risk-Return slightly higher than 1:1. If your trades are only successful 20% of the time, you need at least a 1:4 Risk-Return.

As a general rule of thumb, it is very difficult to achieve a winning rate greater than 50%. Therefore, most profitable traders aim for Risk-Return trades that are 1:2 as an absolute minimum, while 1:3 or 1:4 is strongly suggested.


http://www.onlineforextrading.com/learn-trading/risk-reward-ratio

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