Are You A Winner?
What matters most when it comes to wins vs losses?
Is it total pips? How much money you make?
it’s neither. In fact when it comes down to it how much you risk vs the reward rules all.
As a signal provider it can be tempting to show pip totals in an attempt to lure clients. Now this is a good strategy as it does show efficiency in the market it doesn't tell the whole tale of how well you are as a trader.
Let me tell you a tale of two traders.
Trader 1, let’s call him B. He is all about the total pips. His trades pull 100 pip wins CONSISTENTLY. Now you’re probably thinking, “Man, this guy is an absolute stud!”. Here’s the thing though, his stop losses are usually 100 pips.
And that brings me to Trader 2. let’s call her D. D only bags between 30 a trade. This pales in comparison to B. However, her stop losses are never anymore than 10 pips.
When we put the two together we can see how important risk reward is.
Let’s give them both 50% strike rate and compare 100 trades each. This means that they win 50% of the trades they take and they risk 1% per trade.
B has a 1:1 risk reward. Even though his wins are 100 pips, each loss is also 100 pips. With a 50% win rate he sits at break even.
D has a 3:1 risk reward. Her wins are only 30% of B’s at 30 pips each but her stops are much smaller. With a 3:1 risk reward this means that for every win she has it takes care of 3 losses. At 1% risk she is up 100% on her account after 100 trades.
She may have substantially less pips but at the end of the day the difference in risk reward is what reigns supreme.
So what does this mean?
This means that if you want to be profitable as a trader or taking signals you must abide by the risk reward rule!!!