Trading is tough. Actually, trading as a retail investor is almost impossible. Only 1% of traders make money doing it in the long run, and the majority lose it all.
Here at the Daily Profit Machine, we’ve separated ourselves from the 99% of retail investors in several ways. Mainly, we’re different because we have a proven system which incorporates trading rules our members live by.
Trading Rule #1: Use the Risk-Reward Ratio
This straightforward formula does several critical things way before a potential trade is even considered. In a nutshell, the risk-reward ratio, and the portfolio model we send our members quantifies the expected success against the possible failure of a new potential position.
Once calculated, you can quickly evaluate a trade. For example, a risk-reward ratio of 4.0x is a better trade to go with than one of 3.2x.
So what does a trader get from the risk-reward ratio?
- Determines the level of potential and loss and sets the basis for deciding one trade over another.
- Eliminates the guessing of when to exit.
How do we calculate the risk-reward ratio?
Let’s look a recent example where we locked in 30% profit in 25 days with $GGB.
To start, the calculation is quite simple:
Targeted Reward $ / Max Loss $
$GGB came right off the watch list with a buy triggered at $1.84. With $10,000 of capital to allocate, the max loss of 7% per trading rules = $1.71 stop or $0.13 cents. Technical analysis indicated resistance at $2.21 for a potential profit of 20% or $0.37 cents
Risk-Reward = $0.37 / $0.13 or 2.86x
Anything over 2.0x is a good trade. The higher above that, the better.
Actual Long Alert Sent at 9:42 a.m. EST on July 7, 2016:
25 days later…
Actual Sell Alert Sent at 11:30 a.m. EST on August 1, 2016:
The risk-reward ratio is just one of the rules making up the foundation of the Daily Profit Machine. Start using it and you might find yourself one step closer to the 1% of retail investors making it in the long run.
For an even faster way to become one of the 1%, click here to sign up for my new swing trade alert system with an overall inception to date return above 90%. – the Daily Profit Machine.