best risk reward ratio for beginners
Using the right risk/reward ratio is one of the most important factors for success in the financial markets and trading. The right risk/reward ratio can turn a losing trader into a profitable one. Many amateur and even professional traders are unaware of the importance of this powerful tool, yet by choosing the right risk/reward ratio, they can avoid many of their losses and also make more and easier profits.
Also, the right risk / reward-ratio can greatly help a trader’s self-confidence, but how? When a trader’s positions reach their target profits, he mentally achieves success and his mind accepts him as a successful trader.
How does using the right risk/reward ratio lead to profitability ?
One of the reasons amateur traders lose money is that when they see a trend and movement on the chart, they want to trade the trend from start to finish and open positions with very large profit targets. And that turns many of their positions from profitable to unprofitable.
Photo by TradingView
As you can see in the image above, we found a very good entry point on the chart and opened our buy position with a risk/reward ratio of 1:4 and tried to make a very large profit. The price has also risen according to our analysis and has given us a good profit, but after completing its upward movement it starts to fall and activates our protective stop.
Now, if we had used a proper risk-reward ratio, such as 1 to 2, we would have been profitable in this position. So if you are an amateur trader, instead of using large risk to reward ratios, use a risk to reward ratio of 1 to 2 so that you can have successful trades and make profits because our goal is to make money. By doing this, after a while you will see that your profit margin has become positive and you are making progress.
Photo by TradingView
In the example above, this time we used a risk/reward ratio of 1 to 2 and as you can see, the market reached our profit target and we had a successful trade. By using a lower risk/reward ratio, we can achieve a higher number of profitable trades.
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