Calculation of Risk and Reward in the Forex | Forex Education

Calculation of Risk and Reward in the Forex

Understanding, risk means the risks you and reward is the sum of your advantage than risk you last. So suppose your 20 pips risk and reward you mean 20 pips.

Risk: Reward = 20: 20 or on the small right again into 1: 1

Another example is if your 40 pips Sl TP 10 pips that Risk: Reward = 40: 10 or 4: 1

How its effects with ratio this one in our trading formula?

For example: If the Risk: Reward you = 1: 1, to keep the profit, you must win 60 %, if 50 % means no result at all pseudonyms 0.

I will give you an example for this case.

If SL (Stop Loss) you 20, TP (Profit Target) 20 or Risk Reward you 1: 1, then if in trading 10 times, win 6 times 4 times the loss.

Profit = 6 x 20 = 120 pips

Loss = 4 x-20 = -80 pips

Total = 120-80 = 40 pips

Cool, just need 60% win ratio alone is enough to survive.

Another question, how about risk and reward 2: 1, or risk twice as big of reward?

Another example, lets say win 60% (6 times win in trading 10 times) again as above, Stop Loss 20 and Target Profit 10.

Profit = 6 x 10 = 60 pips

Loss = 4 x-20 = -80 pips

Profit = 60-80 = -20 pips

Why minus the ratio 60% win, then win ratio should be higher, we make a 70% win.

Profit = 7 x 10 = 70 pips

Loss = 3 x-20 = -60 pips

Profit = 70-60 = 10 pips

Still profit than loss!

In essence, the greater the risk against the reward then% we must win to be the greater profit to stay afloat,

so conversely, if we lower the risk reward, then% win big-need not be large.

Example again:

Suppose a stop loss 10 pips, profit target 40 pips and only 3 times in the last 10 trading or percentage of win only 30%.
Let's take a look:

Profit = 3 x 40 = 120 pips

Loss = 7 x -10 = -70 pips

Total = 120 - 70 = 50 pips

Not bad. Loss 7 times can still profits.

Conclucion:

Risk > Reward <=> > %win

Risk < Reward <=> < %win

If you feel your system only generates a low win percentage below 60% is a good idea to correct the Risk Reward you, but if you feel your reward bad Risk or Risk outweigh the reward then you should improve your win percentage, so just choose which.

see you in the next Forex Education