Risk:Reward Ratio and Win Rates
In a series of posts we're going to familiarize you with some of the basic concepts of forex and trading. In this post we're going to talk about
risk to reward ratio and its relation with win rates which is crucial if you want to be a profitable trader.
You can lose money with a 70% win rate or even more if your few losers are so big that they wipe out your winners. On the other hand, you can have a profitable system even with a win rate of 50%, 40% or only 30% if you are good at letting winners run and cutting losses short.
It all comes down to your reward risk ratio. Without knowing the reward risk ratio of a single trade, it is literally impossible to trade profitably. Basically, the reward risk ratio measures the distance from your entry to your stop loss and your take profit order and then compares the two distances. This picture shows the relation between risk to reward ratio and win rate.
#Educational | @Median_Line
