Profits and the Minimum Risk to Reward
When I set up a trade on VEMA Trader, I submit it with my chosen conditions and leave it alone, continuing to live my best VEMA life. But sometimes I come back and realise my trade has been terminated – no entry taken. WHAT!?!?
Looking further I see that the Risk to Reward has ended up below the required minimum and VEMA has saved me from entering a trade. As frustrating as it can be initially, here is why VEMA Trader can save you from entering undesirable trades ,and the reason why this is actually a great thing for your trading account!
What is Risk to Reward?
Let’s discuss the importance of knowing exactly what is Risk to Reward? Traders use it to determine how much they are willing to risk from their trading accounts in order to make profit. We also use it to determine how accurate we need to be in our trades over a longer period of time. The more successful higher Risk to Reward trades we win, the less times we actually need to win the trade. Check out Sam’s article “Why risk to reward ratio is more important than percentages”.
How does it work?
If I use VEMA Trader to calculate my personal win rate via the ANALYSE function, I can see I have a current win rate of 50%. This means I must at least aim for over 1:1 trades in order to stay a profitable trader. If I lose more trades than win with a low Risk to Reward, I am actually putting my account into the negative. Not what I want at all to live my VEMA life!
Now, imagine you set up a trade, believing it was a 2:1, only for it to execute and actually create a 0.9:1 trade. If these trades executed, but didn’t play out in the way of hitting your stop loss, then technically even though you set up for a 2:1, the execution of the trade would actually end up putting at you at risk of further loss.
VEMA will not allow you to enter a trade lower than your minimum required Risk to Reward. In the long term this will save you exposing your trading account at unnecessary risk in the form of poor Risk to Reward management.