Determining Risk vs. Profit??

July 18th, 2017, 01:20 PM

I hear a lot from many different sources that you should not enter a trade unless your profit vs. risk is 2 to 1 or 3 to 1. But it hasn't been clear to me how to to even make that determination...
Here is my guess:
Suppose there is some sort of support & resistance level, spread 4 points apart. If I were to enter 1 point away from support, would that mean the profit is 3 and the risk is 1? Is this correct?

Thanks for the help!

SpeculatorSeth · July 18th, 2017, 02:49 PM

zaruski

I hear a lot from many different sources that you should not enter a trade unless your profit vs. risk is 2 to 1 or 3 to 1. But it hasn't been clear to me how to to even make that determination...
Here is my guess:
Suppose there is some sort of support & resistance level, spread 4 points apart. If I were to enter 1 point away from support, would that mean the profit is 3 and the risk is 1? Is this correct?

Thanks for the help!

That's the general idea. Risk is generally defined as the amount a position can go against you before your trading idea is wrong.

One of the best webinars you can watch:

July 22nd, 2017, 10:10 AM

I found this article on calculating Risk as "R" extremely helpful. It talks about stocks but it's easily referable. Completely changed how I thought of risk and money management.

Determining Risk vs. Profit??

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Determining Risk vs. Profit??