This ratio can help you decide to take the trade or not!
The risk to reward ratio basically tells you how much money you’re hoping to gain, relative to the amount of money you’re prepared to lose…
It’s critical that you understand this risk to reward ratio because when you use it properly, you’ll see that it will cut your losses and maximise your profits.
Take a look at this chart so I can explain in more detail!
Make sure your rewards always outweigh your risks!
On the 14th
May 2014, I told my Red Hot Storm Traders
to go long (buy) Sanlam CFDs. On the 5 June 2014, I told them to close their trade at their take profit level banking them a 75.13% gain in less than a month…
Before I tell you the specifics, just look at the above chart again…
You can see that the amount that I was willing to lose (Risk) is a lot less than what I was hoping to make (Reward)…
If you can see that the risk is less than the reward potential, then you’re ready to see how the risk to reward ratio works!
And so, here were the specifics for the Red Hot Storm Trader
Sanlam CFD trade:
Entry = R57.80
Stop loss = R56.22
Take profit = R60.70
Next, we simply plug in those values into the ratio!
The Risk to Reward calculation that qualifies your high probability trade!
(Take profit – Entry) ÷ (Entry – Stop Loss)
= (R60.70 – R57.80) ÷ (R57.80 – R56.22)
This should tell you that you’d gain 1.8 times as much as you were willing to lose!
And here’s my little secret!
If you only take trades where the risk to reward ratio is more than 1.5, then you’ll be even more profitable over the long term.
Anything less than 1.5 and you’ll see that you risk as much as you’re willing to make. In the long run, this is very often another losing strategy.
Just by using the rule this year alone, I’ve managed to help my Red Hot Storm Traders
bank 326% gains…
Let’s make your trading even more successful!
This rule is just one of a few I use to maximise my winners and minimize my losers then trading…
On the 5th
of July, I’m going to reveal my entire winning trading strategy with all of these trading rules you’ll learn to improve your trading big time.
So if you’d like to meet me personally and learn these trading rules, click here…
“Wisdom yields Wealth”