As mentioned in the earlier sections, reward-to-risk in ratio and expectancy comprise and important aspect of risk management. Reward-to-risk or return-or-risk referred to the ratio of the potential V in on one trade compared to the predetermined maximum loss. This is typically calculated based on the number of steps for one profit target divided by the number of bits for one stop loss. For example if you are going long gbp/usd at 1.7000 100 pip stop and a profit target at 1.7300, your reward-to-risk ratio on this trade is 3:1 if you are shorting usd/jpy at 100.00 with a sop at 100.50 e and a profit targets at 95.00, your return-on-risk for this trade is 10:1 . Regardless of how much of your account your is on a particular trade the reward to risk is always based on the ratio of the profit target to your stock loss. Even if you will reach 0.15% on a shot us the trade at 100.00 or 1% of your account if your staff is at 101.00 and your target is at 90 6.00 your reward to risk for both scenarios is 4:1. It is important to pay attention to your reward to risk when taking trade staff to ensure that your winners are larger than your lossing trades it is generally recommended that trade must have at least 1:1 reward to risk. 2 for some traders they prefer taking trade that are at leas 2:1 to make sure that they can make up for consecutive flossing traders with fever meaning trade. Another important aspect of risk management is the win ratio this refers to the percentage of winning trades among all trades taken for example if you were able to take a total of 100 trades and won 60 of them , your win ratio or percentage is 60%. Improving one's when ratio involves conducting fundamental and technical analysis in order to determine which steps have a higher probability of turning out to be winner this also requires consistency and proper execution of your trade plan combined with decent reward to risk ratio of at least one into one on each trade you can be able to maximize your profitability in the longer Run. This is where the concept of expectancy comes in having a high when ratio does not necessarily guarantee longer-term trading success if your winning trades are are often much smaller than your losing trades and 80% when ratio is not a guarantee of consistent profitability if your average win is at least $10 while your average loss is at $200. Expectancy takes into account your average reward to risk on your trades and juxtaposes it with your vein ratio. In other words it gives you an amount you stand to gain or loss for each dollar of these this is calculated by taking the product of your average winning trades and UAV in ratio than subtracting the product of your average flossing trade and your profitability of losing. With a positive expectancy you are able to add gradually to your account in the long run with a negative expectancy you wind up gradually depleting your account. For instance, if a trader has a vein ratio of 40% with an average been of 250 dollar and an average loss of $100 the expectancy is $40 this means that he is able to add and average of $40 to his account for every trade taken. On the other hand if a trader has a win ratio of 60% with an average of $100 and an average loss of $200 than his expectancy is -$20. This means that he is actually subtracting an average of $20 II II from his account for every trade taken. Thanks.
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