Originally Posted by
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Reward/Risk ratio? Oh yeah, that is that 3:1 or even 2:1 thingy is not it? I have been meaning to get around to studying up on that, but I have been too busy earning money.
Reward is an unknown factor in my transactions. Sure, my transactions have profit goals, but whether price will really hit those goals, I don't have any idea.
When I enter a transaction, I do not know what my Reward will be (if any), but I really do know exactly what my risk is. My objective would be to reduce and eliminate the entry risk as quickly as possible. I'm not seeking to make money. That's a coincidence if I make money, however, my attention is about reducing risk.
For example, let's say I put in a trade with the initial prevent loss of 40 pips, which represents 2% of my equity. My reward is represented by R and is an unknown until after the transaction is closed
Hence my entry reward/risk ratio is R/40. If the trade moves in my favor, and I'm able to move my stop upward by 20 pips, my reward/risk ratio becomes R/20. I have but I do know that the ratio was doubled, and my risk was halved.
When I am able to get rid of risk by shifting my stop to break even, then my ratio becomes R/0 that has a value of infinity. I really don't know about you, but I have found having a reward/risk ratio of infinity has been demonstrated to be profitable.
Dial