# Why the ratio of 1:1.5 will see you banking bigger winners today!

by , 11 June 2014

No matter what trading strategy you have, there's no escaping the fact that you're going to lose money at some time or another in your trading career.

But how much money you lose is entirely up to you!

You see, the problem that most beginner traders have is that, they get into a trade and have no idea what they can lose compared to what they can make…

And that's why today I'm going to stop you from ever making this major mistake with just one simple ratio!

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!

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!

(Take profit – Entry) ÷ (Entry – Stop Loss)

= (R60.70 – R57.80) ÷ (R57.80 – R56.22)

= 1,84

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…

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.

Always remember,

“Wisdom yields Wealth”