Money rules the world, so it’s no wonder that every trader will be interested in what profit he can actually expect from trading. One extremely necessary tool called RRR (Risk: Reward ratio) can be used for this. RRR should be an absolutely integral part of money management for you.
Emotions are the basis of trading
When trading, it is essential to realize one thing in particular, and that is that the market cannot be blamed for bad losses. Many novices or average traders do this. However, the professional knows that losses will come and are part of the market. He also knows that what the loss will be depends mainly on him.
Let’s look at the difference between betting and trading, for example. The fact is that when betting, the loss and profit are set by a third party (how much you earn, but also how much you lose). Whether it’s roulette or a bet on a football match.
But when trading, you determine the loss (using stoploss). You also determine the profit by setting your plan, expected profit and also using the RRR tool, which will be described in more detail below.
The difference between professionals and beginners
The average trader assesses both his risk and risk through his last two trades. The professional does not care and does not make such a decision based on the past. He knows that the risk must always be assessed in the same way.
Only the best trader can turn a position and “stop losing”. When it comes to trading against you, the market tells you in other words that you are wrong. It is therefore necessary to decide whether a person will stubbornly stick to his decision or admit a mistake and change his position with a loss.
A professional trader, even if he remodels and is at a loss, knows how much it is. Of the 10 trades, even if he doesn’t get 5 of them, for example, he knows exactly how much he will lose in which trade (either 1%, 3% or 5%). But he has it calculated in advance and is reconciled to the fact that it can turn out that way. However, a professional will find it very difficult to lose 90% of a trade. Even though every trader has losses, it is necessary to be able to determine how big the loss will be.
RRR – Risk reward ratio
RRR is key to being able to properly manage your position and know what risk (and profit opportunity) you are going into a given trade with. This is a tool that you can find in tradingview or on another similar platform.
This tool will determine how much risk you are going to a given trade and how you can benefit from it. So, for example, if RRR shows you a value of 2, imagine it as risking one unit (BTC, euro, dollar, whatever) and the possibility of getting 2.
Most traders recommend going to the trade with an RRR of at least 1.5, but it is ideal to have it above 2.5 to 3 (never enter under 1 because you risk more than you can get!). Of course, it depends on each of you. However, RRR is very important and you need to know which suits you. From stoploss to expected profit.
If you want to become a professional trader, you need to know not only how to know RRR, but also to use it. Although this may not seem extremely important, many professional traders point out that almost 80% of successful trading takes place in the head and is just about the psyche.