The Risk Reward Ratio is Most often Used as a measure for Trading Individual Stocks and Commodity
Some Trail and Error is Usually Required to Determine Which Ratio is Best For a Given Trading strategy,Also Every Trader and Investor Required Risk/Reward Ratio For their Investment, As in our Case with Right Guide Trading System we are Following 1:3 risk Reward Ratio with 1:3 Trader Can Manage Risk/reward More directly through the Use of Stop-loss orders.
Some myth also There The Risk Reward Ratio is useless , you often Read That Traders Say the Risk Reward Ratio is useless which couldn’t be further from the truth. Although, the reward:risk ratio by itself has no value, when you use it in combination with other trading metrics, it quickly becomes one of the most powerful trading tools.
Without knowing the Risk Reward Ratio of a single trade, it is literally impossible to trade profitably
Investing With a Risk/Reward Focus
Investors often use stop-loss orders when trading individual stocks to help minimize losses and directly manage their investments with a risk/reward focus. A stop-loss order is a trading trigger placed on a stock that automates the selling of the stock from a portfolio if the stock reaches a specified low. Investors can automatically set stop-loss orders through Trading accounts and typically do not require exorbitant additional trading costs.
Consider this example. A trader purchases 100 shares of XYZ Company at Rs.20 and places a stop-loss order at Rs.15 to ensure that losses will not exceed Rs.500. Also assume that this trader believes that the price of XYZ will reach Rs.35 in the next few months. In this case, the trader is willing to risk Rs.5 per share to make an expected return of Rs.15 per share after closing the position. Since the trader stands to make double the amount that she has risked, she would be said to have a 1:3 risk/reward ratio on that particular trade.
Using the Risk/Reward Ratio to Your Advantage
Investing with a risk/reward focus for individual stocks using stop-loss orders can significantly help investors to manage the overall risk on their investments. Stop-loss orders allow investors to place a sell trigger on their investments at essentially only the trading cost of the block trade. With this trading mechanism in place, investors can manipulate risk/reward ratios to their benefit by setting a specified risk/reward ratio of their choosing per investment.
For example, if a conservative investor seeks a 1:5 risk/reward ratio for a specified investment, then he can use the stop-loss order to adjust the risk/reward ratio to his investing specification. In this case, in the trading example noted above, if an investor has a 1:5 risk/reward ratio required for his investment, he would set the stop-loss order at Rs.17.
Want to Know more about Risk Reward Ration Write us Directly at email@example.com