Many financial market traders have one question on their minds; “How do I find a balance between my risk tolerance and my reward when trading online?” This is a question that Samuel Fletcher, one of the top financial analysts at Wilkins Finance has been asked a lot over the course of several years. When setting a high-risk high-reward trading strategy, a trader needs to micromanage how this trade will be executed. Let’s look at how this is done. Calculating RRR or Reward Risk Ratio

The reward RRR takes into account the length of where you enter the market to where you have set a stop loss to make profit. These numbers are then taken and then compared to each other. A Reward Risk Ratio Formula would be calculated as follow: RRR = (Take Profit – Entry )/(Entry – Stop loss). A good example would be to say that the length between market entry and your stop loss is 60 points and the length between market entry and where your take profit is 120 points. This means that the RRR is 2:1 as 120/2 = 2.

Calculating the Minimum Winrate

Once you determine what your reward to risk ratio for the trade you are making is, you can calculate what the best winrate is to get you profit. The winrate formula is calculated as follow: Minimum Winrate = 1 / (1 + RRR). When executing a trade with a 1:1 RRR, your winrate has to be bigger than 50% to in order to make a profit and will be calculated as 1 / (1+1) = 0.5 = 50%. This is an important calculation because if you take trades that have a small RRR you will lose money over the long term, even if you think you find good trades.

When taking these two formulas into consideration, it is easy to see that you don’t need a big risk to reward ratio or a high winrate in order to make a profit. It is essential to remember that if your RRR and your winrate match, you can expect a positive outcome.