Return and Risk

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WHS Wouter
Posts: 856
Joined: 05 Jun 2013 15:12

Return and Risk

Post by WHS Wouter »

RRR stands for Return/Risk Ratio. This ratio divides the potential profit by the potential loss. If, for example, the objective is to win 100 € at a risk of 20 € then the RRR is 5 (= 100/20). A hard and fast rule is to never enter into a trade if the RRR is not at least 2. Smaller RRRs are acceptable in certain types of trading or trading strategies which have (or should have) a high proportion of winning trades. For example scalping strategies.

The RRR before opening a position
In the NanoTrader platform the RRR is visible in the order ticket. It is obviously necessary to select contingent orders in the order as the sell limit is the potential profit and the sell stop the potential loss.
In this example the trader wants to buy at the market price (currently 9398,5). His target is 9468 (i.e. a return of +69,5 points or +0,7%). His stop is 9373 (i.e.a risk of -25,5 points or -0,3%). Therefore his return/risk ratio is 2,7 (= 69,5/25,5).

Tip: traders who base their target and stop orders on key points in the charts can grab the red order lines and slide them to the desired levels in the chart! The RRR in the order ticket will automatically change when sliding the orders.

Tip: contingent orders on futures are not possible. Futures traders can use the Tradeguard to bracket their positions with a limit and a stop order.

The RRR when a position is open
The RRR on an open position is visible in the account. The RRR will change if, for example, the trader raises his stop or his target. In addition the potential risk (PotRisk) and the potential profit (PotProfit) are shown in money terms.
In this example the RRR is 2,04. The trader is currently making a profit of 14,60 € out of a target of 79,90 €.

Good luck trading.
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