The trading risk-reward ratio simply determines the potential loss versus the potential profit on any given trade. It sounds incredible but some “trading systems” don’t calculate risk for you. Others simply say “stop-loss 200 points, target 300 points”. Neither approach would be used by a professional. Trading is a risky business. Not being able to quantify risk is a dangerous way to trade.
EnigmaSignal calculates risk-reward on every possible trade entry that is evaluated. There can be many dozens of entries per hour or in a day on any given instrument, way too many for a human to calculate. When EnigmaSignal has a valid trade entry, it compares it to dozens of parameters that the trader has selected. Don’t panic. They are simple to understand, and each parameter is covered in-depth on the Boot Camp and in videos.
One parameter the trade can configure is the risk-reward ratio. For example, they can enter 2 as the minimum risk regard trade they want to take. EnigmaSignal will then only show trade entries for trades that is calculates are likely to reach the traders risk-reward settings.
How do you calculate the risk-reward ratio?
The risk is simply defined as the price distance between your entry and your stop loss.
The reward is simply defined as the price distance between your entry and your take profit.
In order to determine the risk to reward ratio, you simply need to divide the potential “Total Risk” to the potential “Total Reward:”
Risk Reward Ratio = Total Risk / Total Reward
It’s that simple. But EnigmaSignal does much more than calculate risk/reward once. It calculates it every second, on every trade. Constantly making adjustments to stop levels, targets and taking into account hundreds of factors as it does so.