Long and short position (risk/reward)

Die Idee in einfachen Worten

Before a trade, decide where you are wrong (stop) and where you take profit (target). If the possible gain is at least twice the possible loss, you can be wrong more often than right and still come out ahead over many trades.

So wird gerechnet

Click the entry. Drag the target and stop handles to your levels and the right edge to your time horizon.

Risk = |entry − stop|
Reward = |target − entry|
Risk/reward = 1 : (reward ÷ risk)

Anwendung

• Look for setups with reward at least 2× the risk.
• Work out position size from the risk: money you accept to lose ÷ risk per unit.

Schlüsse ziehen

• A 1 : 3 trade needs to win only a little over one time in four to break even (ignoring costs).

Worauf man achten sollte

• The plan is only as good as your discipline in following it.
• Costs (spread, commissions) reduce the real reward.

Ein wenig Geschichte

Risk/reward planning is a basic rule of trading risk management.