Trading

Do Not Be Fooled by Ratios

Avoid Being Fooled By Ratios

Trading involves a lot of complex calculations and we are often following the rule of Ratios whenever we make trades. A major example of this is the risk/reward ratio. This is where you will only make trades that have the minimal risk, but promises a great reward.

Although this has been used for quite some time now by many different traders, it is important that you know to never really trust ratios in the first place.

Here is why: suppose that there are two trades. One promises to give you 5 with a risk factor of only 1. The other trade is a measly 1 paid profit in exchange for a possible 5 risk factor. Of the two trades, which would people choose? It would be obvious, at least on the surface, that people would choose the one with the lower risk factor, but that choice is actually wrong. Let me explain why.

Do Not Be Fooled by RatiosThe problem with people who rely solely on ratios is that they do not look at the actual probability or chance that they’re going to win in the first place. Yes, you might get paid 5 times and the risk of losing is only 1, but what if the actual percentage is 10%? The odds are not in your favor, my friend.

And truth be told, the actual chance that you’re going to win a trade in real life is close to that percentage; around 10-15%.

So you see now that ratios do not necessarily mean that you’re going to win trades. It just means that your potential for loss is not that big and so you can safely trade.

Ideal Trading Scenario

Do Not Be Fooled by RatiosSo, instead of relying on ratios, just rely on your trading plan. What I mean is that you constantly make suitable trades for you in order for you to earn profits as much as you would like. Think of an insurance company that continuously writes policies on a consistent basis, so, too, should you make trades as well.

Do not go blindly trading, though. As I’ve said, use your trading plan to your advantage. What you do is you look at the BetTrading platform and search for the best online brokerage account or you can use other similar programs that you like. You select the market that you want to trade in. For example, if you want to bet on horses, then you can pretty much do so.

Most traders look at the form of the horse to see if it looks good. If you do not know how to spot a good contender, you can just go with the favorite. Then you lay or back bets depending on the current situation. You have to make sure that you look at the tabs as closely as possible.

Conclusion

Do not be fooled by ratios. Having a good risk/reward ratio does not necessarily mean that you can actually cash in on it and make some profits. The best way to win trades is for you to follow a solid trading plan and that is all there is to it.

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