How to Increase the Reward:Risk of Your Trades
#413: How to Increase the Reward:Risk of Your Trades
In this video:
00:29 – An easy technique which will increase your profits
00:53 – Most traders focus only on Win Rates
01:52 – How do you achieve high R:R trades?
02:24 – Using Limit Orders
03:49 – A real time example from the USD/JPY D1 chart
05:23 – A lower win rate but make massive gains
05:44 – My June FX Insiders Webinar – email me if you’d like to join me
I’m going to explain to you how you can increase the reward to risk of your trades by using limit orders. It’s a very important part of your trading success. Let’s get into that and more right now.
Hey, traders, Andrew here at the Forex Trading Coach with video and podcast number 413.
An easy technique which will increase your profits
Now I want to explain to you a very easy technique to increase the reward to risk of your trades, and by increasing the reward to risk of your trades, that is a massive step forward for you to become a profitable Forex trader. Now, when people start trading, they probably don’t value how important that is.
Most traders focus only on Win Rates
Most people seem to think about win rates and I get emails all the time saying, “Hey Andrew, what’s your win rate.” Or, “If I took daily charts, what’s your win rate or one hour charts does that increase my win rate?” And the problem with win rate, although it might feel very nice and warm and fuzzy to say, “I’ve got nine out of 10 trades correct.” The problem is with most people that I’ve ever seen that have very high win rates is their reward to risk on the trades is very small and all they need is say, one out of 10 trades to go wrong, and it’s wiped out all the gains that they’ve made from the other nine profitable trades.
So, having a win rate of let’s say 90%, really doesn’t mean a lot. And most people that I’ve seen over all the years of trading, actually lose money, bigger picture when they have high win rates. Although for most new people, it sounds like it’s the most important thing. It really is not. High reward to risk is what counts.
How do you achieve high R:R trades?
But how do you do that, and how to do that in a practical, easy way? Well, some people might look at that and go, “Okay, to get a high reward out of my trade. I must have a very, very small stop loss. And every so often, you pull off a winning trade and it makes a high reward to risk.” And you could do that if you really wanted to. The problem is your win rate on that will be very, very small because most of the time with a very small stop loss, your spreads or news announcements or something is going to take the trade out and you’ll just end up losing so many trades.
Using Limit Orders
The easy way around it, and it’s what we’ve done for years and years, is to use limit orders. So when you look at your charts, you can place a trade at the market, which means you’re jumping in right now. You can use stop orders, which means on a buy stop, it means that you are putting a by trade in above the current price. Not really so good for high reward to risk. It’s okay if you want to break out of a zone, let’s say.
But the trade that we use are limit orders. So I’m using a buy limit means here’s the price right now. I like my setup, but I’m buying when the price goes lower than where it currently is. And it doesn’t mean to say, you need to sit there, just watching for the price to drop, drop, drop. “Oh yeah, I’m going to press buy now.” You don’t do that at all. You see your setup that you like as a trade and you then, using the way that we trade, using fib levels, et cetera, we then put in a buy limit to buy the trade if the price drops to a certain level.
And now of course we can just place that order and just leave the trade alone. We don’t have to be there at that exact time when the price hits that level. The same thing in reverse with the sell. Price is here. We don’t want to be selling right now. We want to wait for the price to rise first and then sell, based on the strengths of the candle pattern and the setup that we see, but we’re getting in at a higher price.
A real time example from the USD/JPY D1 chart
Now I’ll give you an exact example from just yesterday. So go have a look at your charts on Thursday, the 27th of May’s 2021 daily charts. So yesterday I took a trade on the US Yen, and we had a trade and it made a fantastic 2.5 to one reward to risk. Now I’ve just calculated, if we took that same trade with the same stop loss and the same profit target, but we took that at the market open, we’d have made a 1.1 reward to risk trade. So equate that to percentages. If I’m risking half a percent on each trade, if I placed the trade at the market, I’d have made just over half of 1%, but because I used my limit order and the trade filled for me really nicely at the exact entry that I was looking for, I made a 1.25% gain on my account.
So you can see one trade, I’m making half a percent, but I’m not doing that. The other trade I’m making 1.25%. Exactly the same trade, took me the same time to see the trade, took me the same time to place the trade. I didn’t do any more work. All I used was a limit order to take the trade at a better price. And by doing that, you can have a say, 30, 40, 50% win rate. You don’t have to have 90% win rate, because your trades are making great profit. And that’s where the gains are made.
A lower win rate but make massive gains
Now, if you can achieve trades of two to one, three to one, four to one, five to one, that kind of level, you can have a very ordinary win rate and still do extremely well from your trading. And that means it’s something that’s very easily achievable and it will without doubt increase your returns from your trading.
My June FX Insiders Webinar – email me if you’d like to join me
Now, following on from that in June, my next Forex Insider’s webinar will be on exactly this topic, but it’s going to be a lot more detailed, a lot more expanded. So we’re going to have an hour webinar, live webinar, limited places. If you’d like to get on there and learn more about how we use limit orders and how we achieve high reward to risk trades, do yourself a favour, register for it and send me an email, [email protected], and I’ll make sure that you have one of those reserved places on that Forex Insiders webinar. It’s going to be a great event. We’ve had awesome feedback from the previous webinars that we’ve held. They are free, but there are limited places. So to get on that June Forex Insiders webinar, and to understand how we use limit orders and retracements and fib levels to achieve high reward to risk trades, get onto it. Send me an email right now, [email protected]. Let me know that you’d like to reserve a place and I’ll send you a link.
Bye for now.
Episode Title: #413: How to Increase the Reward:Risk of Your Trades