How To Maintain Your Profit / Loss Ratio

Regardless of the market in which you are operating, it is important that you always keep in mind a potential gain that makes each operation worthwhile. For example, it does not make much sense to risk $1000 to win only $100, since this will eventually make you lose your entire account. Generally, professional traders employ a profit / loss ratio of at least 2 : 1. This serves, among other things, to maintain a certain balance in the operations of the operators in such a way that the profits outweigh the losses. The successful trade seeks to have a positive balance at the end of all its operations and not just one. Therefore, keeping all our operations on balance helps to maintain the balance of trading in general.

This raises a question for us – how can we decide objectively whether the profit potential is large enough to guarantee the risk we are running? There is really no simple answer to this question, everything is based on the experience, knowledge and general understanding of the specific market in which it is operating. There is no other way to know. In essence, trading boils down to this: Is it worth the risk? Successful traders raise and answer that question in every transaction knowing in advance that not all will succeed.

In fact, they understand that the loss in one or the other operation at the end is offset by the gains made on winning trades. At the end of what is involved this is not to lose too much in the losing operations in relation to the gains that are obtained in the winning operations. That being said, it is quite difficult for a trader to have a positive balance if he is constantly trying to force his trades so that they get benefits to the place.

The successful trader regularly does not risk more than he can win in an operation, although on some occasions he can risk what he has already won in order to increase his profits, which is a more calculated risk. So, the maxim I’ve talked about before – cutting losses fast and letting profits run – applies here.

This does not negate the reality of keeping your potential profits online with your potential losses. It simply means that while a trader should try to keep the profit / loss ratio at least level, that same trader could, if possible, try to keep the profit / loss ratio as high as he can without falling into greed or stupidity, operating Carelessly without taking into account the actual conditions that prevail in the market.