Two pieces of advice come up constantly in retail trading. One says you should aim for a high risk-to-reward ratio: “never take a trade unless the reward is at least twice the risk.” The other says you should aim for a high win rate: “if my system isn’t winning most of the time, it isn’t working.” Both sound reasonable. Neither tells the whole story. A risk-to-reward ratio compares how much you are risking on a trade with how much you could make if the trade…Continue Reading “Risk-to-Reward Ratio vs. Win Rate: Why Expectancy Decides Profitability”
Before you open a trade, two numbers decide how big it should be: how much of your account you’re willing to lose if the stop is hit, and how far away that stop actually is. Position sizing is the calculation that turns those two numbers into a tradeable size, whether that’s shares, units or lots. Get the order wrong, picking a lot size first and squeezing the stop to fit it, and the risk you actually take stops matching the risk you planned. Get it…Continue Reading “Position Sizing and Risk per Trade: The 1% Rule, Formula, and Examples”