Discover Your Next Trading Step w/ this Test >>


Hi, Andrea Unger here. And some seconds to discuss about risk reward.

Risk reward 1:3.

Is this the Holy Grail of trading? Sometimes, you will read about that, but I believe it’s not. Actually, it is not. Believe me, the risk reward depends on the kind, the type of strategy that you put in place. There are strategies where you might even have a reward which is smaller than the risk. I have plenty of them. Maybe at a stop loss of $1000, at a take profit of $500. So, am I crazy? No. The point is these strategies have a winning percentage which is much higher than 50%. It’s not like a coin toss. it’s something where I maybe have 10 winners and one loser. So, with 10 winners of 500, I get $5000 and a loser of $1000—still leaves me with 4000 in my pockets.

So, actually, it much depends on the kind of strategy. If you use a classical trend following strategy or you go for a long-term trend, normally, in this strategy, you don’t even use a take profit because it would cut your runs. It would be counter-sense.

So actually, in these strategies, the reward is much, much wider than the risk. But you also know if you use them that you are stopped out very often, false breakout, trends that don’t start. So, you enter many times, you get many small stops. And when you get, at last, the desired winner, you get a big win. It means you have a large risk reward.

But if you use countertrend strategies, rebound strategies—things like that—swing trading strategies, sometimes you use take-profits which are smaller than the stop loss that you put in place, just because you want to catch a small and fast rebound and you leave breathe to the trade if it goes against you just because you are still waiting for that moment when the move changes direction.

So, actually, risk reward 123 is a legend that is probably told from people who never clicked on a mouse to catch the trade. Believe me, it depends on the kind of approach that you put in place.
Stay tuned.

Discover Your Next Trading Step w/ this Test >>

Categories: Technical

Andrea Unger

Known as the only 4-Time Trading World Champion (2008, 2009, 2010, and 2012), Andrea Unger is a full-time professional trader since 2001 and honorary member of SIAT (Italian Society of Technical Analysis, a branch of IFTA). Appreciated author, he is often invited as a speaker all around the world.

1 Comment

Forex Signals · January 8, 2018 at 18:34

Trading is like participating in sports, it requires all the efforts to win, like a great sportsman never give up, always tries to learn new techniques and plan strategies to win the game. Great writing, and well explained.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.