How Do We Compute our Risk/Reward Ratio?

[aiz]

Hi SMPeers! To further aid entry-level investors and traders alike, can our friends here share their own versions/practices/charts on how to strategize on maximizing rewards and minimizing risks? We all know that the norm is a ratio of 1:3 risk/reward. Pwede po bang pa-sample ng best practices ninyo?

[vester]

para sa akin.. trailing stop loss pinaka importante... LEARN HOW TO LOVE TO CUTLOSS... hihi...

[gbk]

Mathematical answer ba? hehe Risk-Reward ratio or plain old risk is the standard deviation. The higher the std. dev., the more volatile or risky. Then subjectivity comes into play on how much a portfolio can tolerate and how much a portfolio can take. Pag diversification ng portfolio na pinag-uusapan, e kailangan relative risk ng individual stocks in relation to the whole na, so co-variance na kailangan. Pag nacompute lahat ng ek ek na yan, mahahanap mo ang efficient frontier (or the best return given a level of risk) na tinatwag sa economics. yan ang essence ng portfolio management profession. hehe Nosebleed!!!! (Di yata ako nakatulong....)

Sa style ko, fibonacci lang pwede na para simple ang life. = )

[Rico]

Bos gbk! Hello po sa inyo. Pwede po in layman terms po, hindi ko po naintindihan yung sagot ng konti, gusto ko pa naman po yun topic. Salamat.

[gbk]

@rico please don't mind such a formal approach to risk-reward. Too much computation on that one.

Eto na lang, the proximity of your entry to your expected/estimated resistance level is the profit potential or reward. And the distance from your entry and the expected/estimate support is the risk. The range between the resistance and support determines your risk-reward ratio. Your entry is a point between that range. The risk reward is determined subjectively i.e. you risking a loss of 5% for a gain of 7-10%. If the trade-off is acceptable to you, then that is your ideal level of risk-reward ratio.

[aiz]

@rico please don't mind such a formal approach to risk-reward. Too much computation on that one.

Eto na lang, the proximity of your entry to your expected/estimated resistance level is the profit potential or reward. And the distance from your entry and the expected/estimate support is the risk. The range between the resistance and support determines your risk-reward ratio. Your entry is a point between that range. The risk reward is determined subjectively i.e. you risking a loss of 5% for a gain of 7-10%. If the trade-off is acceptable to you, then that is your ideal level of risk-reward ratio.

ayun, mas ok 'to boss gbk. na-stupefy ata ako dun sa una mong sagot hahaha. thanks boss

[rider168]

I think for me, you have to establish first the size of your trades on the basis of how much money you can afford to risk, not how much you want to make or the reward.

For more info I posted it here:
Managing Risk or Money Management

[fco2783]

How Do We Compute our Risk/Reward Ratio?

mhirap eto haaa... pero there is really no computation for this. why??? example n lng...

may isang pulubi nwlan ng sampong piso, at may isang myaman n nwlan ng isang libo. sino s dalawa un tingin m mas kawawa.

obviously un pulubi kc pwede un sampong piso n un ang buhay nya, kaysa s myaman n mlamang meron p syang tinatago kayamanan.

same goes to risk and rewards. gets???
so anu un moral lesson, nsa tao lng un kung may pera o wla... heheh...

if your taking a risk on bazuras stocks. make sure n 1/4 or less un iinvest m.

[glenchuy]

^^ pag bazura, i don't think "invest" is the right term. baka mas appropriate ang "sugal" hehe. =D

[kiko]

HELP!

Naguguluhan pa din ako sa risk reward ratio. Gusto ko sana to gamitin kaso hindi ko sure kung tama ba pagkakaintindi ko.

Basically eto ang problema ko:

1) Saan ba to puwede iapply? Breakouts? An Uptrend? Dips? In a Range? O sa lahat?

2) Magkaiba pa ba ang Stop Loss at Risk?

2) Ang pagdetermine ba nito ay depende sa sitwasyon ng chart ng isang stock? O kahit ikaw ang gumawa basta malaman mo lang ang potential gain (resistance) at puwede ka na magset ng SARILI mong risk level? O ang risk level ba ay dapat naaayon din sa chart (support) at hindi puwedeng ikaw lang nag set?

Para mas maliwanag ay may example ako:
Stock: MA



Nevermind kung mali TA ko sa Resistance :p para lang may example.

So bali sinet ko ang Potential Gain sa Resistance at .064. Ngayon dahil 1:3, the distance between .064 and .054 is 10pts so I divided it up by 3 = .00333333333333. I subtracted it from .054 at lumabas ay .0506666666. I rounded it off to .051.

So yun, ang stop loss ko ay .051. Tama ba ginawa ko? Tama ba pagkakaintindi ko sa application ng Risk Reward ratio?


O mali ako dahil ayon sa definition ni gbk na:

"the proximity of your entry to your expected/estimated resistance level is the profit potential or reward. And the distance from your entry and the expected/estimate support is the risk. The range between the resistance and support determines your risk-reward ratio. Your entry is a point between that range."

ay dapat ang Risk ko ay sa Support (don't mind it kung mali ulit ang TA ko for Support gusto ko lang may example ) which is .042 according dun sa chart at hindi yung kinalculate kong .051.



Which again means hindi siya good trade dahil hindi na 1:3 ang Risk Reward ratio? (Potential Gain 10pts (.064), Risk 12pts (.042))

Sorry kung nakakalito