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Increase returns on the system that you’re currently using for trading. Use our Real-Time Risk Management/Order Entry Add-on to increase order entry time & efficiency while reducing calculation errors & slippage.
Low Risk/High Reward Trading
Find high reward and low risk trades
Low Risk/ High Reward trading is a concept that is crucial to constant profits in trading and correlates directly with proper risk management. While this is true, the subject rests very misunderstood by the majority of traders. At first sound, one would think that this means finding a system with a high percentage of winners. Simple right! Just back test until you get system results with 80% winners. After all, the system is only losing 20 times out of 100. How could you lose money? First off, were all trades possible to enter? Did you simulate the random distribution of the R units? Did you subtract commissions and slippage? More than likely you did not. I will not go into this in detail but simulation is very good for finding your risk of ruin. Dr, Van K. Tharp's book covers all of this material in depth and is one of the most important books you can have as a trader. The title is "Definitive guide to Position Sizing."
These misconceptions can get you bankrupt or leave you trading for years with very average returns, which in my opinion is worst. I personally would choose bankrupt so I know I need to learn more about the subject of trading.
Low Risk/High Reward trading is ability to find places in the market that allow you to load up on contracts while still using the same amount of %Risk. Passing on all trades that do not fit this criteria is the second part of the equation.
Loading up is a phrase I like to use because it allows people to relate to a concept they understand. We all know what it means to "load up the moving van" and we all want that van to be packed to the brim so we do not have to make another trip. So just one step further, the renter who packs 50 personal items in the van verses the renter that packs 25 items is getting twice the return on his rental van time. For this example, the items packed and distance traveled are the same.
The markets are similar to this example. We want to buy as many contracts as possible while still risking the same % Risk. For 1% Risk, it is better to buy 10 contracts instead of 5. If the market goes to the exact same low, one trader is making twice as much money in the same move, even though they are both risking 1% of their capital. To sum up Low Risk/High Reward trading, it is getting in at points of entry that allow you to increase the number of contracts you buy without increasing risk. I hope you understand how this is important for your bottom line. Look at the following series of photos and you should be able completely understand this concept.
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