The problem I have with Risk TO Reward ratios is that I have seen them cause traders to hold trades too long. I am a firm believer in taking profit when the market makes it available to you. If you do not, you can let a profitable trade become a loss. I’ve seen this happen time and again when someone is putting too much weight on some magic ratio.
I do see the attraction with these ratios. If you can have a 2 to 1 risk to reward ratio, you can actually lose over half your trades (if you make sure your losses are 1/2 the size of your winners), and still come out on top! Sounds great in theory, but in live action I find much harder to accomplish.
One way to minimize the risks when trading with a highly leveraged form of investment, such as spread betting, is to make use of a guaranteed stop loss. This way you can calculate your maximum loss before you start trading.
Magnifying Trading Options On Etfs
Spread betting is a leveraged form of investment, it involves a high degree of risk to your capital and can give rise to losses that are more important than your initial deposit. Please ensure that it matches your trading requirements as it can only be suitable for all types of investor. Before you start trading, make sure that you’re well aware of the risks. Only speculate with funds that you will be able to afford to lose. Where you think that it is necessary request independent financial advice.
The problem is that you NEVER know what the market is going to do next, I do not care how many formulas you go by, or how many indicators you look at! Those indicators are all based on formulas too.
Here is another problem, whose formula do you go by? Ted ‘s, Jed ‘s, Ed ‘s, or Fred’s formula? There are a TON of them to choose from.
In the long run I have found that you’ll do a LOT better by just taking what the market gives you, and cutting your losers short. If you do that consistently, you’ll be way ahead of the people who look to some arbitrary ratio on their trades. They may work for longer term investments. However, with day trading I like to remain in the moment and take what the market is offering.
The margin with an exchange traded fund could be 50 %, for example. For a 10, 000 trade you would therefore have to initially deposit 5, 000. ETFs are also not generally traded 24 hours a day, but during normal stock market trading hours.
One vehicle that does allow you to somewhat accurately calculate the risk is the option. I prefer binary options.
If you like the notion of knowing what your risk is going to be before you enter a trade, you might want to find out how to trade binary options. Binary options are such an easy way to invest that many traders are flocking to them.
Binary options aren’t controlled by Wall Street-yet. They offer a nice alternative for various types of investments. The learning curve is small for binary options. You just need a simple binary options course that can have you up and running quickly.