Bitcoin Forum

Hello people. let's get right into it.


what is more important than Technical , Fundamental analysis is  RISK - REWARD ratio.


as basic as it may sound, i am very certain that many traders do not have the best practice when comes to risk to reward ratio!


I will give you a simple math lesson to show you the power of this practice.

now assuming that every trade you have has a 50% to hit your take profit target , and 50% chance to hit your STOP LOSS target.

-------------------------------
1 - ( The worst practice )
now let us say you are the typical newbie who sets a very far SL and a tight TP target.


so,Bob is a newbie who has x amount of money  to trade in  "x " coin
Bob buys at price of 1000 points, sits his SL at 500 and TP at 1250 (because he is so afraid to lose so he keeps SL far away!)
 
Bob will lose 500 to earn 250.

assuming Bob will have 50/50 chances , which means in every 10 trades he will lose 500*5 and win 250*5
so 1250 - 2500 =  - 1250

Bob gets mad , yell at his wife, they divorce and then he blame the WHALES for his lost !

------------------------------------

2-  ( The average practice )

Steve risks 500$ for 500$  " 1:1 risk:reward ratio".

Steve makes the exact same trades but

2500 - 2500 =   0  - exchange / broker fees


-----------------------------------

3- ( The best practice )

Mike "me :D"  risk 250 $ to make 500$  " 1:2 risk:reward ratio"

I make the same trades as the other two guys! get the same results

Lose 250 * 5 = 1250
Win  500 * 5   = 2500

I end up making 2500 - 1250 = 1250$ - exchange / broker fees

wife is happy, cat is happy and so am I :D:
------------------------
now you might argue about the fact that 50/50 won't always happen.in fact using this strategy you will only need

3.5 / 10 GOOD trades to make profit!

3.5 * 500 profit = 1750
6.5 * 250 loss   = 1625
= 125 profit
------------------------------

now this is only 1:2 risk : reward ratio ! think of 1:3 !! . i personally never trade anything that less than 1:2 ratio , sometimes i go 1:5.

and to be honest I make so many wrong calls but in the end of the month my portfolio is in the green !!!

------------------------------

now in order for you to maximize your chances, you need to follow a strategy be it Support/ Resistance levels , MACD divergences , what so ever !...

Trust me people this is really the ONLY way to end up in green for the long run ! the power of Risk:reward ratio is AMAZING, i only started to make some good income after following this strategy.

and since i am not selling anything here, and you got nothing to lose. just give it a try !


you can try this method on a DEMO account to see how it works out for you! 

 and rememeber whatever you do , NEVER BE LIKE BOB




*excuse my poor English , please do not make fun of my spelling and grammatical mistakes :D

I'll try to summarize this for all you guys who want a TL;DR: basically the best practice is 2:1 ratio what this means is that after you buy you set your sell target at a 10% profit and set a stop-loss at 5% below the price you bought.

Thats a long story short thanks.

I just had to write a sort of detailed explanation especially for those who just started trading.

if people are interested I can make more posts on Technical analysis.  I am a newbie in this forum but being trading for good 6 years and willing to share what I learned so far for absolutely free.

cheers

The probability of an event that the coin will grow by 500 is much lower than the probability of a fall by 250. So these strategies are theoretically the same.

Without a doubt, the application of risk/reward ratio is very vital in trading in order that profit is maximized with as few winnings as possible, since it is apparently easier to lose than win. However it needs to be emphasized that a trade ending in greens, just don't come by mere wishes and a risk\reward ratio can only be as good as the fundamental and/or the technical analysis from which they're projected. Suffice to say that, you would have to get it right first with your analysis, for your risk/reward ratio to stand any chance.

you can imagine that you can make an infinite number of trades. would you be profitable in the long run?

You do not need to anything bigger to get the profit mate. There are various bump and dump signal available in telegram and slack channel. Better you may join in anything to make the profit and bid the trade as get the information on channel.

Then technically I do not know what you can to get the profit all the time, because the value bumping and dumping is not picked by the any technical stuffs it is based on the market's reaction over cryptocurrency.

You can't do this sort of thing, if you have a stop loss at 5% you're going to hit that in a day in crypto.Crypto goes up 5-10 percent in the matter of a few hours, if you are to follow this you're going to miss out on some big gains in crypto -- if the market does go up.

If you put the stop loss at 25% that makes more sense and matches the crypto volatility -- do that and you'll be good. Set sell target at 10-15 percent.

Goodluck folks -- I still like HODL more then any other strat.

This is the reason why there's a lot of new users who jump in to trading and lose money because some make it sound so easy like you are buying a candy. When you buy a token or coin, it doesn't end when you set a goal for auto sell once you hit 10% target and or sell once the bought price went down 5%. It's not a color game that you only need to pick Green or Red, there's technical analysis behind that, there's a reason why you Sell/Buy at that price. Research is the best strategy.

so you risking 25% for 10% gains ? good luck :D

not true at all, the probability of a coin growing by 500 vs fall by 250 is 50/50!.. the probability of a coin growing 1000% is exactly the same as falling 1%.  

simple proof is when BTC was at 1$ a trader who set SL at .9$ and TP at 16000$ had a 50/50 chances regardless of what happened

price doesn't need to fall by an x % before growing x%. it doesn't work this way.


look at the chart and you will understand !

go set up a demo account and figure.  place random 1000 trades with  1:2 risk/reward ratio

not saying you should trade randomly, but adding a good risk/reward ration to your trading strategy is a KEY.

Cryptocurrency investment is for long term and you will have to wait for long time to earn money from crypto trading. No doubt that you will earn money if you wait for the price to go up more and when you realize that it is the right time for selling then you can sell your bitcoin. Strategies must be for long term. Cryptocurrency investment is not for short time.

Yes,taking calculated risk in the trading will be the key to success,if someone take risk blindly then chance of making profits from the trades is very low.But having good experience in this field will make us successful.

Yeah to be a successful trader you must have the courage to bear the loss in trading because if you don’t have the quality to face hard times then you will never be a successful trader. Those who want quick response they should invest in regular business because cryptocurrency business is for long run and you will have to wait for good times to come.

Yeah to be a successful trader you must have the courage to bear the loss in trading because if you don’t have the quality to face hard times then you will never be a successful trader. Those who want quick response they should invest in regular business because cryptocurrency business is for long run and you will have to wait for good times to come.

This is the first time that I've read about risk/reward ratio or 3R's. I absorbed every detail that you want to convey and I think, newbies are always fall in the worst trader specially those who have not any idea about trading. I am a trader also but I do not make it as my hobby since I have only a small amount of capital. This is helpful guide to me, thanks buddy!

I am glad i could provide some knowledge. hope you will make good profit.

we should all know the market changes and the altcoin or other coin that is not bitcoin we must know everything about it the stuffs like the specific coin.

1. Know the right time

2. study trading the right way like reading and posting a youtube that really help to create your own strategy.

3 You guys can work AND THINK on your own MAKE and try the best strategy just study and read.

Well I will not say that is a bad strategy, and that is usually the ultimate goal of any trader: keep their losses low, and profits high. I do believe there could be a problem with this. We all know crypto is very volatile, so isn't it going to be quite easy for his stop loss to be hit, and for his profit taking to not hit?

Let's stay we are trying to get 10% profit and accept a 5% loss. The market goes in our favor, but only 6%. Then it dumps and we not only lose out 6%, but we also hit our stop loss, ending up losing 5%.

I guess this could be solved by using a trailing stop loss. Meaning we accept 5% loss at the point we are at. So if we were in 6% green and the market dumps. Since we only accept a loss of 5% based on our current point, we would end up breaking even because we would actually end up winning 1% on that trade.

Do you have a better solution for this?

see now again this really depends on your trading strategy. for me i do not use any type of indicators, i only use Support / Resistance. so i do apply exactly what you said except the fact that i do not move my SL randomly or based on %. i move it based on either Support/ or Resistance line not just to protect myself from my initial SL.

giving your scenario, but with a different ENDING , say the market moves 6% in your favor and then moves against you and hit your NEW SL which we assume it's break even, and then moves in your initial favor 10% ! so you technically lost 10% in profit.

since we are debating about un-predictable scenario so anybody can support their point view with real numbers.

but let me share something i learned the hard way !. am sure every trader suffered/ suffering from this. how many times you got out of a trade and then it goes up crazily ! and you be like ,, shit i sold and it went up ! if only i waited 5 more mins.

that's why the best strategy for beginners and mid skilled is " SET AND FORGET" .

this way you avoid getting screwed by emotions, once you get in a trade it should be based on technical reason. so your SL and TP should make sense at the moment of entry , thus no matter how things go you should not touch your SL/TP.

once your eyes become more conftable with charts, you will handle trailing stop better, you would also apply hedging and balancing once needed. but these require fast and solid decision away from emotions, and i do not think it's easy to get rid of emotions!.

i have been doing this for years on forex and now on both crypto and forex and almost every time i temper with my intial decision i fu** up.



 

This is an excellent trading analysis that I've ever seen. This sharing comes from practical experience and great interest in your community and that's great. I will apply these in my upcoming trade. Thank you for sharing.

I was in search for some good articles for to study more about trade and to improve my trading practice. I often invest in those coins which have a very benefiting event in the coming days then I invest in those and those type of coins often increase faster in the market. Your article is benefiting for me and I will try some tips from your article to improve my trading practice.

Thanks mikeywith, I will give it a shot. Right now I'm just paper trading so I don't have anything to lose and I am able to commit to my strategies and see how they work with no emotions involved. Right now I was figuring out which indicators I should use. I mainly use resistance levels like you, and I'm also combining them with RSI and volume indicators to try to take the most out of those big moves in the crypto space. Since most of the times I'm trading on "sky-breaks" I keep having problems knowing when to book profits or accepting losses. I'm missing that in my strategy so I will try to use your approach and see how it goes. Thanks for sharing.

I would say , stay away from indicators, only use Support/ Reticence and price action.
you can check my trading ideas on the forum. see how do i identify my entry points.

you can also search google for price action , things like " pin bar, inside- bar " there are all based on support / resistance.

just google learntotradethemarket, check the guy's guide for using price actions, you will love it.


RSI / MACD bla bla bla are used by people who believe in OVERSOLD / OVERBOUGH which doesn't apply in tha market.

those indicators been showing over bough on btc all the way from when btc was worth a few cents ,there are relatively inaccurate 

Good luck

you are most welcome, kindly read my prev comments too.

-----------------------------------------------------------------------------------

It might appear like a perfect strategy, but I would like to remember always that there is a human-factor present in every case.

didn't quite understand your point.

good tricks and worthy of example by the general public.

the same as my trading tricks like that, on the basis ny we gain 10% and when dropped in stop lose when you lose 5%.

so the rest of your trading result every day is 5%, (that's your profit).

Why are you making it so difficult? the only way to be a succesfull trader is just to have some knowledge, buy lower, and sell higher, that is the only way to make a good profit in here

trading strategy and portfolio management are two very different things.


plus there is NO low and NO high in any market. if there is please tell us all what's the low and whats the high of btc?  people were saying 1k is the highest btc can go , a few months later boom ! 18k ! .. later they said 15K is the lowest it can go, boom ! 5K !

exactly the point, since you can never make 100% accurate calls, at least minimize the risk and maximize profit .

For me the best strategy ever is buy when the price of coins or investments drops to low amount or value  and sell it when the right times comes that the amount or value of it is in the high stage.

For me the best strategy that I always use because I know this is useful and helpful is buy when the price of it is in the low amount and sell it when it is in the high amount to be profitable.