In this video:
00:36 A massive difference to overall trading performance
03:04 Seventeen trades all together that have closed this week
05:06 “From Dairy Farmer To Forex Trader” eBook available on Amazon
The Importance of High Reward to Risk Trading and How it can make such a Huge Difference to Your Overall Trading Performance
Hi traders it’s Andrew Mitchem here from the Forex Trading Coach and in today’s video and podcast I want to talk about the importance of high reward to risk trading and how it can make such a huge difference to your overall trading performance. Let me share that and more with you right now.
Hi today it’s Friday the 23rd of May and I’m Andrew Mitchem from the Forex Trading Coach and I want to share with you the importance of high reward to risk trading because it’s something that makes such a massive difference to your overall trading performance and I’ve just made a note here of the trades that I’ve taken myself this week and they will just really emphasize the importance of high reward to risk trades.
I’ll start with the weekly trades. I’ve had four trades close this week on my charts based on the weekly charts. They weren’t all taken this week, but they’ve closed this week. Four trades have closed. Two of them have made profit and two have lost. So, I've only had a fifty percent win right there. A lot of people get caught up on strike rate and win rate and “Andrew do you have a ninety percent win rate?” No, I don’t. But it doesn’t matter because the reward to risk is high.
Let me share with you the returns. Those two trades that both hit full profit averaged a 3.2 to 1 reward to risk. In other words, if I was risking let’s say a hundred dollars if the trade lost. On the profitable trades they average $320 so it’s a 3.2 rewards to risk ratio. The two that made and the two that lost, at half of one percent risk each that was a 2.2 percent gain on my account from just those four trades. Don’t forget that fifty percent of the trades I took on the weekly charts lost. But, I still made 2.2 percent gain with only a half percent risk each due to the high reward to risk of those trades.
On to the daily time frame charts. I’ve had five trades close this week. Three of them have been profitable and two have lost. Again, an average for the profitable trades of 2.1 reward to risk. Over the five trades that has given me a 2.15 percent return again on those daily chart trades. Again, two have lost out of the five, so not a great win rate but still a very good return.
Lastly, the four hour chart trades. I’ve had five profitable trades and three losing trades. Those trades have averaged a 1.8 to 1 return to risk on those trades which you have five trades at 1.8 and take away three losing trades. That’s given me a three percent return on my account. So, add that all up together and I’ve had seventeen trades all together that have closed this week. Ten of them have been profitable and seven of them have lost. And again it’s not a very high win rate but it’s still ok, but it’s not a massive win rate. Yet, I’ve made 7.35 percent return on my account this week and I’ve still got today, Friday, to go of which I’ve still got several trades behind me here that are looking really good. So, 7.35% return for a half percent risk per trade.
I have no idea how many pips I’ve made or lost this week because it doesn’t matter. And so many people again get caught up on the number of pips they are making. It really has no relevance at all to your trading performance. The important thing is how much you are risking on each trade and how much you’re making overall. The great thing is with those trades (ten winning trades, seven losing trades) is that ratio can be swapped around the other way and I could have more losing trades than winning trades, but I’m still profitable because when I have a winning trade, it’s so much more.
It’s sort of two or three times the amount that I am risking on the losing trade. So, you can see that you don’t have to have an 80 or 90% profitable system. You can have a thirty or forty percent profitable system and still do well and make money. That’s a really important point that I wanted to make there because the thing is when you start to talk pips what happens with the weekly chart trades that have bigger stop losses all lose and on my four hourly chart trades have smaller profit targets all make. If you start talking about making number of pips, it becomes a crazy thing to do really. Unfortunately, it’s what so many people are lead to believe is the way to make money in trading is to make pips. It really isn’t. Believe me.
The last thing I want to mention. My e-book “From Dairy Farmer To Forex Trader.” It’s here. I have a copy here in front of me. The hard copy or paperback/physical copy. The Kindle version has been downloaded over 600 times in the last week. It is available on Amazon as a paperback version here and it’s available to download on Kindle. If you’d like that just search for my name Andrew Mitchem or search for the book title “From Dairy Farmer To Forex Trader.” Search that in Amazon and you’ll find the book there.
So, that’s all for now. I hope you’ve enjoyed this video and podcast. I look forward to talking to you this time next week. This is Andrew Mitchem from the Forex Trading Coach.