The Right Risk Management Software Can Increase Your Profits
By using risk management software effectively, you can increase your profits and reduce the amount of risk on each trade you make. Reducing risk can sometimes be equated to greater profitability. Many professional day traders understand that an effective risk management plan can serve as one of the most important tools of being a successful day trader. However, many newbie traders often overlook risk management, usually to their detriment.
Win to Loss Ratio
Using a “win to loss” ratio is one of the highlights of an effective risk management plan. Specifically, using a win to loss ratio works as a comparison to how many losing trades you have against profitable ones. As an example, if you had 30 total trades with only 10 losses your average would be 30:10 or 3:1, that would be calculated at ((30 / 10) * 100) = 300) or a 300% win to loss ratio. The higher the win to loss ratio you experience, the higher your profit levels will be. When you combine that with a low “risk to reward” ratio you have the advantage of being more consistently profitable in the total of your trades.
Risk to Reward Ratio
Most modern-day trading systems have highly specialized risk management features including the “risk to reward” ratio. By reducing the amount of risk, you take in every trade, the higher the number of your profit levels. Risks to reward ratios are used as a management tool to compare how much money could be lost versus its potential profit in every trade. As an example, imagine you are currently at a risk to reward ratio of 10:30 “ticks.” The indication would be that the particular trade will be risking 10 ticks so that it can profit 20 ticks. The risk to reward ratio would be 10:30 or 1:3, calculated as ((10 / 30) * 100) = 33.3) or 33.3% of potential profit taking through the trade. The lower your risk to reward ratio the less chance you will have a losing trade, and the higher your profits in winning trades.
Calculating your risks using win to loss ratios and risk to reward ratios is a simple way to minimize your risk and increase your profits. By calculating your risks and combining it with technical analysis indicators and other useful day trading tools, you can maximize the profit of your trades and thereby increase your trading account.
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