Forex Swing Trading Strategies: Capturing Profits In The Singapore Market – Win rate, risk/reward and finding a profitable balance. How many trades you win doesn’t matter if you haven’t factored in the risk/reward.
Profitable and consistent trading is about finding a balance between your win rate and your risk-reward ratio. Here’s how to do it.
Forex Swing Trading Strategies: Capturing Profits In The Singapore Market
Win rate is how many trades you won, usually given as a percentage. Like 50% which is 5 wins out of 10 trades or 50 wins out of 100 trades. This means that 50% of trades placed result in profit.
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Win rate is what many people focus on. They want to be right, often! However, reward:risk (R:R) is just as important. R:R is how much the trader gains on winning trades versus how much he loses on losing trades.
If you risk $100 — that’s what you lose when you lose — but if you make $500 on your winners, you can have a low win rate and still make money because your profitable trades far outweigh your losses.
If you lose $1,000 when you lose but only make $150 when you win, it will be nearly impossible to grow your account over time because you will need to win 9 out of 10 trades to make a profit.
I use reward:risk (instead of the more commonly used risk/reward) so we can work in real numbers. 2:1, 1.5:1, 3:1 etc., or you can simply say that your reward is 3 times your risk in the latter case. Risk/reward is another term used that means the same thing, except then you use a fraction. If your reward is 3 times your risk, the risk/reward is 1/3 or 0.3333. I prefer to use reward:risk.
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For each trade I determine my entry, stop loss and profit target. This gives my estimated reward:risk for the trade.
Over many trades, I will end up with an average R:R and an average win rate. It is these averages, over time, that matter… based on closed trades.
If you strive to make 20:1 R:R trades every time but the price never reaches your target, you will end up with a bunch of losses and a non-existent reward. You have to be able to actually lock in those rewards for it to matter.
Every trade is important – we have to execute it to the best of our ability – but we also want to think about how the strategy works across many trades.
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Are you interested in stocks for day trading? Learn how and when to take advantage of price patterns that occur multiple times a day in stocks. Learn the precise patterns to watch out for that represent a favorable risk/reward opportunity in the stock price day trading course.
Most people think they need to predict exactly where the market will make money. That’s not true.
Think of trading as math. Using win rate and reward:risk you can determine what balance of the two you need to be profitable.
Profits can come regardless of how many losses you have, assuming your gains are large enough to offset them. Losing can be mentally draining if you want to be right all the time, but if your goal is to make money, losing is just part of trading.
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You can earn $6K per month on a $20K account with a 33% win rate and a 5:1 risk reward. All you have to do is make 30 trades on a $20,000 account. Based on statistics, you will lose $200 of capital on 20 trades you place. This means you risk 1% of your account per trade. On the other 10 trades your average win is $1000 (5:1 reward to risk). These gains and losses are randomly distributed per month. Trading is also not time-consuming, so the job only requires a few hours a week.
If you want more income, you can always trade with more capital after you prove yourself.
When laid out like this, it seems pretty simple. Just trust the numbers based on the average for the strategy. Each strategy will provide different statistics over the last few hundred trades.
Once we start trading, we think, “If I can cut some of those losses, I’ll make even more money.” Or “I don’t want to lose on a trade, so I won’t accept trades that I think might be losing.” Or “I just lost 4 trades in a row. I can’t take another possible loss. I’m waiting for the next trade out.” Completely forgetting that we have to take those losing trades to get monthly profits. And so we turn. We need those 20 losses to find those 10 winners that bring us a nice profit. You can’t have one without the other.
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The example is intended to show that large returns are possible even with a low win rate. This trader only wins 33% of his trades, but makes an excellent monthly return.
Another trader could make $6k per month on a $20k account in a completely different way. They win 60% of the time and use a 2.5:1 risk reward on 30 trades. (This is the reward:risk I talk about in my EURUSD day trading course)
Stats can be changed in many ways to provide different scenarios. One way is not better than the other, but if you have a low win rate, you need a higher reward:risk, and if you have a high rate, you can get away with a lower reward:risk.
The high win rate and low risk reward seem to appeal to many people, as it seems easier and less emotional to have more wins, even if they are smaller.
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But don’t be fooled, it’s not any easier. Winning 60% of trades even with a 1:1 R:R or higher is actually quite rare. Most traders, even successful ones, win less than 50% of their trades.
And those people you see claiming to win 90% of their trades…they often end up “blowing up” their account because they take a lot of small profits and then a few big losses wipe them out.
Trying to win a lot of trades is just as difficult as sustaining multiple losses for a few big winners that generate overall profits. However, a certain combination is best for YOU. Find out what makes you feel most comfortable. Be guided by what you feel in real jobs (less stress, more confidence, etc.), not what you think you’d prefer.
The risk/reward and win rate can be easily tracked using software or by recording your trades in an Excel trading journal.
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If day trading is more your thing, check out the EURUSD day trading rate for ways to take advantage of the big rewards: risk opportunities multiple times a day in the forex or futures market.
One of the biggest problems some traders have is holding the trade until the goal, whatever that goal may be. The problem becomes more pronounced the higher the reward:risk. Holding a trade all the way to the 10:1 target can be difficult for some people (yet very motivating and exciting for others).
People who have a hard time sticking to profitable trades tend to withdraw before the goal is reached. Once the trade shows a profit, they fear losing the little profit they have. Therefore, they close the trade with a small profit and miss out on greater potential. But if you keep all your losses and cut profits early, your income disappears. IF you reduce profits
Lose fast, then you might be fine, as long as your wins are on average greater than your losses. But then why not just start with smaller stop losses and targets to begin with?
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Think about what kind of trader you are. Would you rather have big winning trades where you just sit back and watch them unfold? Or would you rather collect smaller wins more often? One is not better than the other, but going against your nature is wrong and will result in frustration and likely failure. Know yourself and then create a strategy around it.
Another thing to consider is that you have to have losing trades to catch profitable trades. Profitable trades are usually worth more than a losing trade (assuming the reward:risk is higher than 1:1), so if you start trying to “skip” losing trades and accidentally skip a winning one, it will REALLY hurt. You just gave $2,000 trying to avoid a $400 loss (5:1) or you gave $800 to avoid a $400 loss (2:1)!
Trying to avoid losses is probably the biggest problem for many traders. Losses bother our minds and our capital, so there is a strong incentive to avoid them. Let me try to reframe that problem for you with an analogy:
I’m hiring you to execute MY strategy for me. I give you all the rules and all you have to do is follow them. You don’t trade. You just follow my instructions/strategy, similar to assembling Ikea furniture. If you follow the rules, I’ll give you a salary of $10,000 a month.
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$10,000 is the maximum I will pay you to implement my strategy because it
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