welcome to this video on risk reward ratio for forex, stock trading and day
trading, and well this applies to swing trading as well for that matter so
here's the big issue a lot of people out there will say things like well I won't
take a trade unless it has a better than three-to-one reward to risk ratio four
to one reward to risk ratio five to one reward the risk ratio whatever it might
be and that's all great but I want to share with you some real-life
considerations when you're taking a stance like that so the first issue is
that risk reward ratios are generally inversely correlated to win loss ratios
so that poses one problem right there if you want to have more winners than
losers you're going to have to be willing to take some trades that don't
have as good a reward to risk ratio and that's a psychological issue we'll come
back to that a little bit so trades with a higher risk reward ratio tend to have
a lower win-loss ratio why is that there is a very clear reason that's because
it's simply easier to determine a short-term move in the market why is
that well because as more time goes by where things can happen in the market to
change the market sentiment and this is why one of the reasons why I should say
that the trades that have a better risk reward ratio they take more time to
develop and therefore they're less likely to complete and so when I want to
say they have a worse win-loss ratio I mean to completion what we're expecting
it to have as a final target doesn't mean you'd lose money necessarily if you
manage them any well but it's less likely to complete its pattern so for
example let's talk about a trade that has the best risk reward ratio which is
a reversal trade where you get in I mean at the end of a trend and then you're
looking to trade a new trend in the opposite direction that is the single
asked rewarded a risk ratio tree there is so let's get to our charts here a
little bit and the average trend last five waves so there is wave five right
there so now we would say okay this is statistically the time to take a trend
reversal trade and catch a trend in the opposite direction before it even
confirmed and therefore we get a fantastic reward to risk ratio
definitely better than three-to-one usually even better than a five to one
reward to risk ratio these are so phenomenal so sure we all love to risk a
little bit to make a lot and that's fantastic
so yes I like that too here's one of the challenges in there you go
okay so this particular trend went seven waves instead of five and this is one of
the challenges is that it is very difficult to determine when exactly a
trend will end so five is statistically the average but because it's an average
by definition there's gotta be some trends that last lasts only three waves
now there's two they go seven waves and so therefore again you're not going to
have as good a win-loss ratio you'll get stopped out here for example and this
will turn into a losing trade another problem with trend reversal trades is
that yeah they're the best reward risk ratio trade but most trends don't
actually reverse in other words even if I were to take this trade here and go
short odds are that the market will yes it'll stop trending but it's not
typically going to then immediately reverse and go into a downtrend what
happens at the most ever at the end of most trends is that they just kind of go
sideways there is a cycle in the market of trending and non trending and what
most likely will happen is that the market will go into a non trending cycle
so then again trading trend reversal trades sure great risk great reward to
risk ratio but only when they complete and
they do not complete most of the time so here's another example and again you'll
see that we get the same thing where we get five waves and then it goes down and
whoops that's not it if we would have taken this long for a trend reversal
trade by golly darn it it went down to meet another
lower low so first of all let me give you one solution to this when I trade
trend reversal trades yes five waves are is the average trend I don't want to
trade within the average so when I take trend reversal trades I actually wait
for a wave seven now that means that sometimes yes the market will stop
trending after wave five and I won't get an opportunity to take a trend reversal
trade I'll just never get that opportunity that's okay I want that
market to be more extended I want it to be beyond the average because I have
actually a really good chance then that seven is going to be the final low now
does that then give me a guarantee the market will go up into a new Uptrend no
but what I like to do is what I call a hybrid trade so scalp trades okay let's
take the other side of the equation here what has a better win-loss ratio since
these big long trend trades or trend reversal trades that have very good
reward to risk ratio traits don't have as good of a win-loss ratio what has a
good win-loss ratio well scalp trades but then again
conversely scalp trades don't have as good of a reward to risk ratio so I do a
hybrid oh let me move the chart here for you I've gotta take my drawing tools off
in order to do that so what I simply do is I will take some profits if I take
this long which this is a typical turn reversal trade for me
all right that's a half cycle right there and so I'll lock in some profits
there in other words as a hybrid I'm doing a little quick little scalp trade
lock in some profits and then adjust my stop put in a trailing stop and this way
I'm golden right at this point really can't lose
especially if I have my position hedged and so forth and that's really key
psychologically it's very important for most traders including myself to have
more winners than losers and if I have more winners than losers and then I get
some big trades in there as well then wow that's just the best of both worlds
for me so this is what I do so I'll take a full position
I'll take part of a position off some of my profits at the half cycle by the way
if you're interested my cycle indicator to share with you how these cycles work
and how we measure them mathematically with precision feel free to send me an
email at birria top dog training com and if webinar is pretty much every week
sometimes twice a week where I actually give away my cycle indicator for free
and give you a 40 minute tutorial on how to trade it and that's how we determine
where these numbers go you see the notations of the numbers and the ABCs
and so forth that's all done with my cycle indicator so happy to give that to
you for free anyway so we we trade a half cycle we lock in some money because
that half cycle is a super-high win-loss ratio rarely do I get a loss on that
then I move my staff in now I'm golden and wouldn't that be great to be golden
on every single trade and again then our win-loss ratio goes through the roof and
even if it's small a bunch of small little winners at the end of the day or
the end of the week is wow it adds up and then not only that but you end up
then getting some big wins as well okay now let's take that off and a lot see
what happens here because I want to share with you another problem when
people say I will only take these big win-loss ratio trades so okay we're
going we're going going going going going going going going going going
going and there we go okay good it all fit in the chart so this one worked
right this trend reversal trade worked and indeed our risk is tiny this is
literally the risk on the trade and our reward is huge
that's some where they're probably probably right in about there
be our reward and so yeah Oh reward to risk racial fabulous fabulous we love it
we'd like to have these every day of the week or every hour of the day problem
here though if you look at this is that the longer the trend continues this in
this case trend reversal trade but the longer the market moves the more
fluctuations come in their journey to the top so for example psychologically
this would be a bit challenging from here to here and not a big deal from
there to there not a big deal from here all the way down to here here's the
question could you stay in when it broke this low for example would you still
stay in and this is very typical of long-term moves they get these big
fluctuations from the time you get in over here to the target over here and
become psychologically challenging to hang in there for the whole move because
you see your P&L you're given money back give you money back giving money back
and so these are things that you need to consider and some of them are personal
decisions as to your own trading psychology what you're comfortable with
and so forth so the bottom line is I'll end with this
a lot of it is personal you need to decide what works for your brain cells
so understand to that scalp trades occur more frequently that gives you more
trades every day or every week if your swing trader and they give you a
satisfaction and they help you with the problem of getting bored if you're only
going to take trades that have a very high reward to risk ratio you're gonna
get bored and you're going to get antsy and when traders get bored and antsy
they tend to make mistakes and it's not as satisfying now if you're a really
patient person and you can do that that's fantastic then that might be the
way to go for you if you find yourself needing more trades and getting reckless
because you're not getting enough trades you might want to incorporate
scalp trading into your trading as well pick up some of those quick profits
along the way waiting for the big moves and to me again
that combination is really the best my friend if you like this video please
understand that yep it's free I give away a lot of free education and I just
ask that if you got value from it you pay it forward by clicking on the share
button and sharing good things with other people that's really the best
thing that you can do also if you're watching on YouTube give it a thumbs up
and leave a comment because I really love your comments they encouraged me to
keep providing more free tutorials for you all so I'm giving you one of my
favorite trade strategies called the rubber band trade which has a very very
high win-loss ratio talking about high win-loss ratios this is probably the
highest win-loss ratio trade I've ever seen in my life
happy to share it with you absolutely free just click on the little icon there
at the top right hand corner of the video and I'll be happy to email it to
you also there's a link in the description box below you can click on
that if you'd prefer and once you do that I will personally email the video
to you with the rubber band trade strategy
you