Post by Admin on Aug 4, 2013 13:00:04 GMT 8
Mar 21, 2013; 9:29pm mel mel Risk-Reward Calculation
In order to calculate risk:reward ratio for particular trade, one needs to have entry price, profit target price, and stop loss point - all set.
For illustration purpose:
- entry price: 1.45
- profit target: 1.55
- stop loss: 1.41
Therefore reward = 1.55 - 1.45 = 0.1 (y) ;
and risk = 1.45 - 1.41 = 0.04 (x);
To calculate reward:risk, simply divide y over x:
0.1 / 0.04 = 2.5
A good reward:risk ratio is >1, the larger the better. By calculating the ratio, one will know whether the trade is worthy of the money and effort. However, take note that different people accept different ratio depending on trading pattern and risk appetite.
In order to calculate risk:reward ratio for particular trade, one needs to have entry price, profit target price, and stop loss point - all set.
For illustration purpose:
- entry price: 1.45
- profit target: 1.55
- stop loss: 1.41
Therefore reward = 1.55 - 1.45 = 0.1 (y) ;
and risk = 1.45 - 1.41 = 0.04 (x);
To calculate reward:risk, simply divide y over x:
0.1 / 0.04 = 2.5
A good reward:risk ratio is >1, the larger the better. By calculating the ratio, one will know whether the trade is worthy of the money and effort. However, take note that different people accept different ratio depending on trading pattern and risk appetite.