FxIgor

When Are Forex Markets Open?

March 6, 2020 by Fxigor

Forex Market Business Hours For Traders

The first forex market to open is the Sydney market at 10 PM GMT and then the Tokyo market opens at 11 PM GMT and then the London market at 7 AM GMT and USA market at 12 PM GMT.

The Hours Of The Forex Market (Forex Market Open)

Region Open and Close Times
Sydney Open 10 PM GMT (summer) / 9 PM GMT (winter)
Sydney Close 7 AM GMT (summer) / 6 AM GMT (winter)
Tokyo Open 11 PM GMT (summer) / 11 PM GMT (winter)
Tokyo Close 8 AM GMT (summer) / 8 AM GMT (winter)
London Open 7 AM GMT (summer) / 8 AM GMT (winter)
London Close 4 PM GMT (summer) / 5 PM GMT (winter)
NY Open 12 PM GMT (summer) / 1 PM GMT (winter)
NY Close 9 PM GMT (summer) / 10 PM GMT (winter)

Forex business hours for trading greatly differ depending upon which market is up for discussion. However, the general consensus is that the forex market technically always open. The reason for this is because the market is always active somewhere in the world. Aside from holidays, the market is open 24 hours a day somewhere in the world. Every city has a different time zone, therefore each market operates on its own time and schedule. The reference time that is most commonly used is GMT. GMT stands for Greenwich Mean Time which is a good reference point for the forex market.

There are several cities that can be identified by their GMT opening and closing times. For example, New York will open at 1pm in Greenwich Mean Time and close at 10 pm in Greenwich Mean Time. Sydney will open at 10 pm in Greenwich Mean Time and close at 6 am in Greenwich Mean Time. Tokyo will open at 00 am in Greenwich Mean Time and close at 8 am in Greenwich Mean Time.

These are the basic references for GMT, as it is the default setting for identifying forex market times. New York, Sydney, and Tokyo are some of the most popular cities in the forex market. These cities conduct a large volume of forex trades. It is very important to use the same base time zone when comparing opening and closing times of markets around the world. For example, some websites will post the opening and closing times in EST. EST is the standard time zone of New York. It is very important for traders to pay close attention to the time zone as 9 am EST is different than 9 am GMT.

When it is past 5pm in New York City, it will be morning somewhere else in the world. This is why many traders consider the market to be open “24 hours a day.” However, each individual city is only open for 8 hours. This is the rule of forex markets. Confusion occurs when the opening and closing times are misinterpreted. Trading centers are always open at some locations in the world.

Many people also want to know if the market is open 5 days a week or 7 days a week. The answer to this is question is 5. Trading centers are open 5 days a week. However, with that being said it is very important to note that time differences can make it seem like the market is open more than 5 days a week depending upon which zone you are living in. Sunday evening will be Monday morning somewhere in the world. For this reason, it is very important to check the time in the market you plan to trade-in.

The benefit of the forex market is its endless options. You can trade at any time of the day or night, which allows traders flexibility and freedom. It is also important to note that trading spreads will be of top quality when the market is reaching a high volume.

Do Trading Robots Really Work?

March 5, 2020 by Fxigor

Are You Ready to Hand Your Trading Over to a Forex Robot?

What is a trading robot or forex robot?

Forex robot or fx bot or forex bot is a trading script that automates the trading decisions on the currency trading platforms. The Forex Robot is a computer-based program and it is based on the set of Forex trading rules. It will help you to buy or sell the currency pair at any point in time.

In Metatrader forex robots we call Expert Advisors. They give you a signal in order to place trades and it can also manage the trade automatically. In this process, the trader does not need to take care of the entire trading process manually. Forex Autobot can trade alone or can be semi-automated – where trader can manage positions and robots only enter into a position.

Do Trading Robots Really Work? Of course, they do, but robots are not “holy grail” and they can not have high performance as you expect. In science research papers, the best robots can achieve 9%-12% gain per year with drawdown less than 8%.

If you think that there is link to the forex robot which can double your account – you will make a mistake. I believe in the quantitative analysis which allows traders to remove emotion from the investing process and focuses on statistics or probabilities over gut feelings. In my opinion using data mining, statistics, testing, creating models – is only way to create a good forex robot.

In my prop company quants creates a lot of “forex robots”, automated trading system.

What is an automated trading system?

This trading system is ruled by the automated process. This is a program that allows the traders in order to set the rules for entering and exiting trades. In this system, the computer has to perform all the trading system and you will just have to sit in front of the monitor in order to see the ups and downs.

There are so many people who do not have exact and enough knowledge about the trading system. They get involved and do not know how to handle this. So, for them, the automated trading system is the best option. This trading system is very much accessible and you will just need a computer with a proper internet connection. You should know one fact that you do not need to do a big investment in order to get started the whole procedure.

It is one kind of software and it can provide the Forex traders multiple amounts of trading services. This software indicates and guides their clients about a suitable time for buying and selling. They can also guide you throughout the process. You do not need to feel lonely in the vast area of the trading market. You can accustom yourself with the whole process.

They will show you the path and results after researching various trading strategies. They always provide the source codes and give you proper guidance as well. They also follow the unique mathematical algorithm.

Now when we know the theory, how quants create excellent robots? Our quants or quantitative researchers, read science research papers, test models, exchange knowledge from traders, test various systems and make results.

Can I show you some trading systems and a forex robot that actually works?

Yes, of course.

For example please read these papers:

Carry Trade Robots based on Currency Risk Premia can have up to 6% per year, Currency Momentum Strategies can have up to 6% (max drawdown 8%) gain, Currency Value Factor-based robots.

The best performance forex robots are robots based on Time series momentum where traders can trade in the same time bonds,equities, commodities, currencies and hedge positions and achive better performance up to 12% gain per year.

Important thing: Results of all these robots are realistic because they tested on large datasets, on the unseen datasets and not overfitted. Robots on the internet (a lot of trading expert advisors that do not have proven scientistic testing on unseen data) which a lot of programmers sell show indicative results and false unrealistic results. For example if we have 3 bullish years for some stock or currency pair and we create robot which will more buy than sell than when we test that robot it will show great performance. In live trading, it will be very bad.

Forex trading has various trading styles and strategies as well. in the market of Forex, there are so many experts and efficient traders who can guide you properly and each and every trader has different ways of strategies and working structures. The overall Forex feature is divided into two parts- one who wants to do trading through a manual trading system and others who want to do trading by utilizing automated trading system. Let focus on automated trading.

Now you generally have these questions- what is an automated trading system? Is this really profitable? What are the benefits and disadvantages of this trading system? Is this procedure totally safe or not? So, let’s proceed towards this article and get all the answers to these important questions.

How does the automated process work?

Step 1: the Trading idea
Either using experience or some basic idea or research paper, the quantitative traders test various ideas.

Step 2: Testing, backtesting or machine learning

In this step we try to optimize model, ad new rules, change rules, improve performance.

Step 3: Coding the final version of the robot

In this step, programmers will write rules in python or mql4 or mql5 or any programming language and finish the robot.

It is not important whether you are an experienced or a beginner and novice in this platform. The automated trading system will guide you throughout the process. They can give you expert advice and take real trading decisions on behalf of the traders.

There are the best trading programs that are computer-based. These programs are specially designed to research and analyze the overall market of trading. This particular software helps you to understand the key trading signals. This software also points out the fluctuation of currencies and transactions as well.

This software helps you to find profitable currency pairs. This software helps you to research well before placing trades on them. If you are planning to input your own strategy of trading then you need to strictly monitor the overall market.

The advantage and disadvantage of forex robot:

Forex Robot is a Forex trading software. It can automate trading decisions. It is very much modern financial strategically system. There are so many companies making and selling Forex Robots. But you will have to follow the strict rules and doing proper market research in order to avoid any kinds of scams and all. This is the only disadvantage of Forex Robots.

Forex Robots are developed and programmed by different and experienced programmers. They are responsible for coding different and various strategies into the fully automated system in order to open, close and manage the position in the Forex trading market. The Forex Robot will execute the trade on the basis of the signals provided by traders. This tool will help the trader to avoid panic attacks and making the perfect trading solutions as well.

The efficient trading robot uses its intelligence to manage the whole process. You can get the successful robots and their advanced strategies. These robots can manage system smartly. They will manage the risk successfully.

Now you have got a clear idea about what is an automated system and how does it work? The robots carefully and strategically execute the trading systems. You can get one time real data from the robots. So, from now, you can invest in the Forex market smartly and strategically and get enough profits from there.

This is the first article on this subject.
In the next articles, I will give you more details about robots, quantitative research, and case study ideas.

What Lot Size Should I Trade?

March 5, 2020 by Fxigor

How To Choose A Lot Size For Ultimate Forex Trading

Lot size or position size you need to calculate based on your equity, risk and trade probability. You can read in detail our article about the postion size formula.

Best Techniques For Choosing A Lot Size In Forex Trading

Selecting a trading lot size to trade comes down to a few basic principals. A lot refers to the size of the trade when trading pairs within the forex market. There are different sizes of lots. With each size comes different levels of risk involved. Brokers will refer to lots by the 1,000 increments. The size of the lot has a direct effect on the amount of risk associated with a certain trade. There are many different ways to determine the type of lot that is best for your trade.

The most simple strategy is to calculate position size in lots is:

Strategy 1: Calculate the size of the lot based on equity

For example, you can set 1 mini lot per $5000 or 1 micro lot per $500 (the gold standard for new traders or lot size forex recommendation). So based on your equity you can calculate position size.

Strategy 2: Calculate position size using Kelly criteria or some other position size formula

You can calculate how to increase your position size based on your past performance. How many percents you can increase the current position size.

Position size = Winrate – ( 1- Winrate / Risk Reward Ratio)

The example you can read in our article about money management EA.

Last 50 trades :
26 trades were positive ( profitable ) with a total gain of 780 pips
24 trades were negative with a total loss of 600 pips
To get the Kelly ratio:
W = 26/50=0.52
R = (780/26)/ (600/24) =1.2
K% = W – [(1 – W) / R]
K% = 0.52- [(1 – 0.52) / 1.2]
K% = 12%
Goal is to compare various systems to see which system has the smallest risk.

A risk management calculator can prove to be helpful when trying to anticipate the risk associated. This also depends on your current assets from your trading account. The size of the lot will determine how much or how little the outcome of the trade affects your accounts. There are different levels of movement on the forex market such as 100 pips. If the trade is small, 100 pips of movement will not be a big deal. However, if the trade is large, 100 pips of movement can be significant. Throughout the course of a broker’s career, they will be able to experience larger lots and smaller lots.

Micro lot trades are a common type of lot that is used with beginners. These are known as the smallest possible lot that a trader can use on the forex market. There are many benefits to using a micro lot. Micro lots are equal to 1,000 units of the currency that you are currently using. For example, if EUR or USD is used, this number will be reflected by 1,000 units worth of the currency. Micro lots are a great option for keeping the level of risk low.

Mini lots are the next size up from micro-lots. Mini lots give traders an opportunity to experience more risk without a major loss. A mini lot is equal to 10,000 units. This is a significant difference compared to micro-lots, however not as large as a standard lot. Mini lots are a great middle-ground between micro and standard. It is important to note that the market can move 100 pips within an hour. This is a factor all traders should consider before deciding on any size of the lot. $2,000 is a good starting point when working with mini lots.

The next size of the lot is known as a standard lot. A standard lot uses 100,000 units for trading. The most common pip size for a standard lot is $10/pip. It is recommended to have approximately $25,000 when working with standard lots.

The majority of traders will be working with micro and mini lots. Few traders work with standard lots as a result of the status they hold. It is best to preserve capital in order to ensure longterm trading. There are many different analogies to help understand exactly how lot size works and how to select the best one, including comparing it to walking on a narrow bridge. The large the bridge, the more support you have.

Risk Management Strategies in Forex Trading

by Fxigor

Forex Risk Management Strategies That You Should Know

What is the risk in forex trading? Risk is the potential for uncontrolled loss of capital in trading. Leverage in trading is a borrowed capital to increase the potential returns and in the forex market, high leverage is up to 1:1000. So traders can trade with more money than they have.

Risk percentage = Risk / Capital

But there is the problem there – high risk in the trading cause that 95% of traders lose money. Traders need to know risk management trading forex rules.

Look at this table again and again:

As we know if trader risk and make drawdown he/she will need more percentage of money to recover. If you lose 50% of your equity you need to earn 100% to recover.

The main reason why many traders don’t make money is not because of inexperience but from the poor risk management trading Forex. Due to the unpredictable nature of the Forex market, it is extremely risky. Hence, Forex risk management is considered to be the success factor irrespective of whether you are a professional or a new trader.

In this article, you will get an insight into the top risk management strategies that will help you to make profits, and avoid loss, so that you can have a good experience while trading Forex.

Risk management strategies in forex trading

In prop companies, traders will get Risk management rules and for example, it looks like this:

1) Do not fall below X% relative drawdown. For example 2% or 4%.
2) Do not fall below X% absolute drawdown. For example, absolute drawdown is the sum difference between the initial capital risked and a minimal point below that level and a lot of companies set to be 5%.
3) Do not risk over X% on each trade. For example 1% per trade or 0.5% per trade etc.
4) Do not have more than a 2% weekly drawdown. In that case, if some trader has above 2% he/she will not trade that week anymore.
5) Position size need to be calculated based on this formula.

Of course, rules can be more detail, this is just an example.

Risk management strategies and related to position size calculation too.

Position size = Winrate – ( 1- Winrate / Risk Reward Ratio) is an example of Kelly criterion (one of the simplest) but in many companies, traders use their own formulas.

If you trade alone, as a retail trader, you need to define your own rules and stick to those rules. If you lose more than wished in this day or week – just stop trade and wait for next week. Do not chase for profit.

Risk management trading Forex tips – risk management for forex trading beginners

Here are some of the risk management trading Forex strategies that would be beneficial for both experienced and beginner traders.

#1: Have a proper understanding of the risks involved in trading Forex

If you are new in the world of trading, the best thing you can do is to educate yourself. Remember that your approach towards Forex trading should be similar to that of any career, in which you need to learn about the subject in detail.

However, there is a diverse range of resources such as Forex videos, webinars, and articles that can provide you with the absolute knowledge you are seeking. After gathering sufficient information on the various aspects of Forex trading, you can test yourself by opening a demo account.

The foreign exchange market and risk management is based on the trader’s plan when and how much lots he/she will trade.

In most articles on the internet for retail traders, the maximum recommended exposure is 2%, where traders risk no more than 2% of their available capital. In my prop company, the maximum risk is 0.5% per position and a maximum weekly drawdown of 2%. This is forex exposure management.

By using virtual funds, you can use the free account to trade Forex. Such type of account will help you to trade in the markets without any risks. As such, you will be able to know the functioning of Forex markets, the different trading platforms, and utilize various trading strategies.

#2: Make use of stop-loss in managing Forex risks

Typically, a stop-loss mechanism is a process of protecting the trades from unforeseen movements in the trading market. Simply put, it is a price that has been set earlier in the system at which the trade will close automatically.

Hence, a stop-loss is very important if you want your trade to end fine. You may consider setting the stop-loss at such a level where you won’t lose above 2% of the trading balance for a given trade. After you have set the loss margin, it is wise not to increase it.

That’s because there is no point in having a safety parameter if you won’t use it properly. Although there are certain types of these in Forex, determining your stop will rely on your experience. Moreover, analyze your stops frequently to find out if they were successful or not.

Of course, there are the traders that do not like stop-loss because they can be “washed up”. It is a situation when the price hits your stop loss and then continues in your wished direction and instead of profit traders deal with a loss.

Because of that a lot of traders use hourly close stop loss or daily close stop loss. For example, the trade will be closed if daily close price is above or below some level.

Traders need to have some kind of stop-loss anyway.

#3: Never risk further if you can’t lose more

This is considered as one of the basic rules in the risk management of Forex trading. It is unfortunate that this particular mistake is very common in Forex traders who have just started out. As the market is very unpredictable, traders who are putting in more money rather than they could afford, are highly exposed to the Forex risks.

Recovering a Forex capital that has been lost is quite difficult because you need to make a greater amount to cover for your loss. It is often seen that after a loss, many traders try to recover in the following trade. This is the worst thing to do, because the account balance is low, and the risk increases. However, a tested rule is not to risk above 2% of the account balance a single trade.

Example:
We have for example trader who had $100 000 and he traded 1 lot per time. After 500 trades he has $50 000 and he still trades using 1 lot. This is a mistake. Less money less position size. He should trade with 0.5 lots.

#4: Limit the use of leverage in managing Forex risk

In layman’s terms, leverage provides you with the chance of magnifying the profits that were made out of your trading account. However, there is a possibility of a risk, and it increases. For instance, leverage on an account of $400 of 1:200 generally means that a trade can be placed for about $80,000 (200 x $400). Similarly, when you apply a 1:500 leverage, you can trade for $200,000 (500 x $400).

Hence, by investing $400 you can experience a complete impact of $200,000 or $80,000. But the risks are quite high as you can have more profits if the market stands with you. Higher leverage can attract higher levels of risk. For beginners, it is suggested to avoid high leverage.

I like high leverage but I do not want to risk more than I planned.

#5: Never have unrealistic profit expectations while managing risks

The main reason why new traders are more aggressive lies in the fact that they are having unrealistic expectations about earning profits. They harbor a false belief that only by aggressively trading they are going to earn more returns in a short time. Maintaining a conventional approach and realistic goals are the only way to get started in Forex trading.

When you are realistic, you can find out where you went wrong. It is very crucial to make an exit when you realize that you haven’t made a good trade. Although it is natural to try in such a way so as to turn the worst situation to a good one, it is not the same with Forex trading and might end in disaster. Poor decisions in trading are often fueled by greed.

#6: Manage Forex trading with take-profit

When you are clear about your expectations, a simple way of securing the profits is to use a take-profit. Just like the stop-loss, this works in the opposite way. A stop-loss automatically closes a trade for preventing further loss, whereas a take-profit automatically closes a trade as soon as it hits a specific profit level.

Based on the expectations of each trade, you will be able to set a specific profit margin and decide what should be the exact risk level for a particular trade. It is better to aim for a 2:1 ratio where the anticipated profit will be twice the risk associated with the trade.

#7: Have a proper plan in Forex trading

It is pretty common with new traders where they make an entry to the platform and make trades relying on their instinct, or following a piece of recent news. While some of them might lead to great trades, but in fact, they are the outcomes of sheer luck. For managing the risks involved in Forex trading, you will need to follow a plan that will outline a few important things.

Those include opening a trade, closing it, fixing a stop-loss to take-profit ratio, percentage of balance you can afford to risk, and so on. Generate a plan and strictly adhere to it. A good plan will keep personal emotions at bay so that you can’t over-trade.

The plan will bring discipline in your trading, and help you in managing risks. Never ignore the rules or tend to bend them, because the failure or success of every trade will depend upon it. A proven way of creating a great trading strategy is to follow and learn from people who are experts in this area.

#8: Always prepare for the worst

As aforementioned, the Forex market is very unpredictable. Despite this, there are lots of evidence in the form of past events that show how a market reacts in a certain situation. Previous happenings or events might not get repeated, but it shows a trend.

Hence, it is crucial to consider the history of a particular currency pair that you are trading. Develop an action plan that will save you from a bad situation if that happens. It is unwise to underestimate the possibilities of sudden price movements. As such, you need a plan that will sail you through it.

#9: Expand your Forex portfolio

You may have heard about a popular risk management rule, which suggests never to put all the eggs in a single basket. Well, the same is true for Forex trading as well. When you have a wide range of investment, it will protect you in situations where the other market will compensate for the particular one that has been dropped.

With this frame of mind, you will be able to manage the risk by making sure that it’s a part of the portfolio and not everything. Another way of expanding your portfolio is to exchange a few currency pairs.

#10: Try to control your emotions

When you are trading in Forex, you should know how to control your emotions. Failing to keep a tab on the emotions won’t allow you to reach a suitable position from where you can earn the profits from trading. That’s because emotional traders find it hard to adhere to the trading strategies and rules.

Stubborn traders will not exit despite losing streaks and expect that they would come out with shining colors after a few trades. But such a thing might never happen. A wise trader will withdraw after realizing the mistake with the smallest loss.

Once out, they will be patient and enter the market whenever an opportunity appears. A trader on winning streak might become greedy and stop following the proper risk management strategies.

Conclusion:

The best way in which the aspects of Forex trading works will vary from one trader to another and depend on their perspectives. Some traders will take calculated risks than the others. It is recommended to start practicing in a conventional way of reducing the amount of risk. Do not chase for profit wait for opportunity and think about risk every day.

How to Calculate Risk Reward Ratio in Forex

by Fxigor

The Complete Guide to Risk Reward Ratio

The risk-reward ratio is noted as conducting measures concerning the level of the reward that you could potentially achieve when you conduct a trade-in correlation to each dollar that you are willing to put up to risk. Take into consideration, for example, that if the risk-reward ratio is shown to be 1:3, this provides the indication that you are willing to put up one dollar to risk in order to gain three dollars in reward. Or if the risk-reward ratio is set forth as being 1:5, this denotes the fact that you are willing to put forth one dollar up to risk in an effort to make a profit of five dollars.

The next question is how to calculate the risk-reward ratio in forex? The best way to calculate the risk-reward ratio in the forex is to use pips as a measure from entry point till stop loss and target.

Risk-reward ratio = absolute value (Price entry value – stop loss value) / absolute value (Price entry value – target price value)

For example if we buy EURUSD and entry price is 1.3 and stop loss is 1.2 and the target is 1.5 then:

(Entry price – stop-loss) = 100 pips (because from 1.3 till 1.2 there are 100 pips.)
(Entry price – target price) = 200 pips (because from 1.3 till 1.5 there are 200 pips.)

Risk reward ratio = 100/200= 1/2. Risk is 1 and reward 2, 1:2.

This is the best way how to calculate the risk-reward ratio in trading.

Risk reward ratio myth

I listen to all the time expressions – High-risk high reward!

What is the relationship between risk and reward in investing anyway?
The risk-return spectrum says that the risk-reward is the relationship between the amount of return gained on an investment and the amount of risk undertaken in that investment. This rule exists in all kinds of business, not just forex. A lot of traders seeking low-risk trades where they try to risk a few pips and to achieve high returns. The problem with this approach is the very low winning rate. Psihologicly this can be very stressful for traders.

Some people may be fooled by the risk-reward ratio and do not really know what it is or do not understand it well. If you are used to seeking trades that possess a risk-reward ratio of 1:2, you could likely continue to be the loser every time.

It is realized that when a trader seeks for trades that tend to possess a risk-reward ratio that is lower than 1, the trader can potentially continue to be profitable in a consistent manner. Then this leads one to ask why this is so. This is due to the fact that the risk-reward ratio is only one factor relating to the success that is achieved.

Now in terms of the lie that you have been given in regard to the risk-reward ratio, likely you have been told that you must possess a risk-reward ratio that is set at 1:2. But that is not true at all. This is based on the premise that the risk-reward ratio does not carry much merit on its own. Take into consideration, for example, that the risk-reward ratio has been set at 1:2. This indicates that every trade that you are perceived as winning will yield for you two dollars in profits. However, the fact is that your winning rate may only be twenty percent. This means that when you have engaged in ten trades, you may win only two trades and you result in losing the other remaining eight trades.

As a result, when the math is completed, this denotes that your total loss is in the amount of eight dollars and your total gain is in the amount of four dollars. Thus, it is determined that your net loss is in the amount of four dollars.

With this being the case, it is highly evident that it is imperative to comprehend that it is fruitless to apply the usage of the risk-reward ratio by itself as a metric. Rather, it is needful to engage in the combining of the risk-reward ratio in conjunction with your winning rate in order to be able to achieve a determination concerning if you will make profits in the long term–which is also referred to as your expectancy.

How to use the risk-reward ratio to be profitable

Risk reward ratio traders need to use together with the Winning ratio and Kelly ratio to create better position size and improve trading performance. If you use 1:5 risk-reward ratio and your winning ratio is 3% it is bad, even you have a great risk-reward ratio.

You need to know the secret in order to be profitable. Thus, you must divide the size of your winning by the size of your average loss and add one to it. Then you are to multiply this by your winning rate and then subtract one from this. This will determine your expectancy when you are conducting trades.

In a scenario where you conduct ten trades, six are counted as winning trades. On the other hand, four are counted as losing trades. Therefore, the result is that your winning percentage ratio is expressed as sixty percent or as six over ten. Then if the case is that six winning trades equated to grant you profits in the amount of three thousand dollars, it is commonly understood that your average win is regarded as being the amount of five hundred dollars. This is derived by dividing the number of profits of three thousand dollars by the number of winning trades which were determined to be six wins.

On this website, we wrote two articles: Money management expert advisor and How do you Profit from Forex Trading?. In both articles we are taling about Kelly ratio

Position size = Winrate – ( 1- Winrate / Risk reward Ratio)

In such a case that four of the trades were losses that equated to a total of one thousand and six hundred dollars, this means that your average loss is determined to be four hundred dollars. This was derived by dividing the total amount of money that was lost by the number of your losing trades.

Now it is time to apply this to the formula that was addressed previously. Thus, you will divide your winning trade average by the losing trade average and you will then add one to this amount. Then you will multiply that by the percentage of your winning trades and minus 1 from the amount. Thus, the result is that your determined expectancy is considered to be 0.35 or it may be expressed as thirty-five percent. This is regarded as being a rather positive expectancy. This means that you will likely receive thirty-five cents for every dollar that you trade over the long term.

Thus, it is realized that the truth is that there really is no foundational minimum risk-reward ratio of 1:2. This is because of the fact that one may possess a risk-reward ratio that is set at 1:0.5; yet, if the person possesses a high enough winning rate, then the trader will still result in gaining profits over the long term.

With this being the case, the primary metric for consideration in terms of importance is not to be viewed as being the risk-reward ratio. Further, it is not to be viewed as being your winning rate. Rather, the most important factor to consider in terms of metrics at this point is your expectancy rate.

With this perspective in place, it is realized that it is not a good idea to engage in the placement of a stop loss at a rate that is considered to be arbitrary, such as one hundred pips up to three hundred pips, as this effort would not really result in making much sense. But rather, it is believed that it is best to engage in leaning against the factors of the markets that serve as barriers, as they engage in the prevention of the price point from aiming at landing on your stops.

Day Trading with Risk/Reward Ratios and Win Rate

So, what is a good risk-reward ratio? The good risk-reward ratio is the ratio which with a combination winning rate gives the best profit. So alone without other rates, the risk-reward ratio is not an important parameter.

If your trading strategy offers you more trades then it can be sensible to consider that you are losing profits. By the day’s end winning trades may not always end up with profits,

The worth of losses and wins should be assessed by the day trades on the basis of their risk-reward ratio, the ratio of win-loss, acceptable risks, and losses while creating ask or bid.

To be a successful day trader, you can generate equilibrium between the risk-reward ratio and the ratio of win-rate by considering all the elements. Your risk-reward ratio should be 1.0 if the win rate is higher like 60-70% and for a win rate 40-50% it should be around 0.69-0.65.

The ratio of win/loss for Day Trading

In order to win almost all the trades, the focus of most day-traders remains on the ratio of win/loss or win-rate. Though it is a sensible move, it does not ensure that the win-rate is profitable or the success of the trader.

Win rate is the number of trades won from all the trades made by you. For instance, your win rate will be 60% if you win 3 trades out of 5.

When you divide your wins by losses then you can get your ratio of win-loss. For instance, 1.5 will be the win-loss ratio if you win 60 trades and lose 40.

So, it will be favorable for you if your win rate is more than 50% and the ratio of win-loss 1.5. But it does not assure you to make you a successful day trader because the value of the loss is more than the value of wins.

Risk/Reward Ratio in day trading

The ratio of risk-reward depends upon the amount you expect to earn from trade and how much you can lose willingly.

By using signals and patterns of the trade, day traders usually quickly enter and exit the market. So they will have to attach a stop-loss clause with every trade to show the risk you can take.

For instance, if you are trading for $10.00 then $9.90 will be your stop-loss position if you are ready for the loss of $0.10.

However, to balance your risk you will have to establish your expected pay-off with the help of your targeted profits.

Analysis of risk-reward ratio

For instance, $0.20 will be your expected profit if you expect the rise in its price up to $10.20.

In this situation, your reward will be twice your expected losses. So, 0.5 will be your risk/reward ratio.

For day traders, a preferable situation is with a lower ratio of risk/reward as it can maximize their profits.

Balancing between risk/reward and win rate

A balance in risk-reward and win rate is necessary for day traders. With a very high risk/reward ratio, a high win rate is useless. Similarly, a higher ratio of risk/reward is worthless with a very low win rate.

You will have to consider the following strategies:

It can be a profitable situation for you if with a higher win rate your risk/reward ratio is high.

You can still earn profits if your ratio of risk/reward and win rate is low.

Peak ratios in day trading

A trading strategy should be made by the traders to win trades between 50-70% as they have to trade in all conditions. Winning more trades can reduce their profitability.

They should also maintain the ratio of risk/reward of less than 1.0 to make profits.

So you should neither have a very low-risk reward ratio nor a very high win rate to earn profits.

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