Before going to explain about the risk to reward ratio and how you can take best benefit from, lets first define risk and reward to make it easy to understand. We all know that risk simple means your loss percentage or amount of loss you can bear.

 

Risk is something that you go for which you can afford and also that helps you to take reward. That is how risk is very must in order to get profit and without it is almost impossible to manage successful trades. Therefore risk means the amount of loss you can afford.

Reward is a simple word which also means profit, the profit which you take from your trade is your reward. Reward depends upon your strategy whether your reward is less or high and it depends upon the trade what it offers.

Risk to reward ratio in trading means that you manage you loss percent to profit percent. Majority of the traders do not understand risk to reward ratio and without proper planning they book their loss or book their profit. If you book three profits and loss one of your trade your all trade will go in loss.

THE IMPORTANCE OF RISK TO REWARD RATIO IN TRADING

But if you manage risk to reward ratio then no doubt after booking two profit 6 profits and losing 6 trades you are still in profit. This strategy is to select your profit percentage against the loss percentage. Which can be in ratio 1:3, 2:5 1:2.7 and it depends on your strategy.

Let suppose we opened a trade with hive and have set our risk to reward ratio. The profit percentage we book is 1.5% and we have set our stoploss at 0.5%. If two your trades hits in profit you will book 3% profit and of the next of your two trades hit in loss you will book 1% loss.

 

Which means you are still at profit with 2% even after losing two of of your trades. This is what risk to reward ratio means and how much importance it has while going for trade. If you have proper learning about managing risk to reward ration you will never be at loss.

If your 50% of your trades ends with profit you will book huge profit while you have also 50% loss in your trades. That is how risk to reward ratio is very important in trading. This is some new thing that no one has told you before about trading and that is the key point in successful trading.

What do you people think risk to reward ratio has great importance in trading? Is this post helpful for you people to understand about another new thing? Will be glad to see your answers in the comment below.

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     NOTE: IMAGES ARE TAKEN FROM CANVA.

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