Risk Reward Calculator (RRC)
Welcome to the “Risk Reward Calculator (RRC)” help & instructions page!
Please read these instructions in their entirety so you know how to use this software.
First of all, thanks for purchasing the "Risk Reward Calculator (RRC)" PC Software program! This program will assist you in becoming a better trader by calculating your maximum trade size for each trade and also calculating your Risk to Reward.
Please take the time to read all of the instructions here so that you know how to properly use the "Risk Reward Calculator (RRC)" PC Software program. While we have made this program intuitive, there are also some important steps and procedures and definitions you will need to know, so please read these instructions closely.
We also recommend "A TRADER'S MONEY MANAGEMENT SYSTEM" by Bennett McDowell. In this book you will learn more about how to implement money management and risk control into your trading. You will also learn more about the "Risk of Ruin" and how to use "The Trader's Assistant" into your money management program.
I wish the best for each and every one of you, trade well and remember to use risk control on each and every trade.
Money Management Tool For Stocks, Commodities, & Forex Traders
The “Risk Reward Calculator (RRC)” calculator is easy to use and will help you maintain Appropriate risk control on every trade and the Importance of knowing your “Risk Reward” & "Trade Size"!
The “Risk Reward Calculator (RRC)” is really two calculators in one. It will calculate your “Trade Size” and also calculate your “Risk Reward”. Please note you do not need to purchase the “Trade Size Calculator-Plus” if you now own the “Risk Reward Calculator (RRC)” as the “Risk Reward Calculator (RRC)” includes everything in the “Trade Size Calculator-Plus” with the addition of calculating the “Risk Reward”.
What is “Risk Reward” & Why You need It?
Many Traders & investors use a risk/reward ratio to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount the trader stands to lose if the price moves in the unexpected direction (the risk) by the amount of profit the trader expects to have made when the position is closed (the reward).
Many traders & investors put way too much emphasis on the “winrate” and do not understand that a “winrate” does not tell you anything about the quality of a system or a trader.
You can lose money with a 80% or even with a 90% “winrate” if your few losers are so big that they wipe out your winners. On the other hand, you can have a profitable system even with a “winrate” of 50%, 40% or only 30% if you are good at letting winners run and cutting losses short.
It all comes down to your reward risk ratio!
The reward to risk ratio (RRR, or reward risk ratio) is maybe the most important metric in trading and a trader who understands the RRR can improve his chances of becoming profitable.
What is “Trade Size” & Why You need It?
We must always trade with the proper "Trade Size" from both a financial money management point of view and an emotional one as well. You will never know when a "drawn-down" period will occur so you must be ready for it to happen at all times. They may not happen that often, but when they do, be ready to handle them. You must be able to trade through these tough times which will and do occur in trading. If you stay within a 2% risk on each trade you will have a great chance of avoiding "risk-of-ruin." But if losing 2% five or six times in a row scares you, then you need to lower your risk even more ( under 2%) until you can emotionally feel good so you do not quit trading. Lowering your percent risk will automatically lower your "Trade Size." For day-traders, an alternate way of approaching this is to set a dollar limit on how much you are willing to lose each day and then stop trading for the day when that level is reached. However, if you can adjust your risk so that a number of consecutive losses don't exceed your daily loss limit, you have the best of both worlds. This is all part of the "art" of trading, since each trader may choose to handle this issue differently based on their beliefs.
Another concept is to realize that how you choose your stop-loss point is important in using our "Trade Size Calculator." In developing our trading system "Applied Reality Trading" stops are based on actual market activity and therefore represent inherent market volatility. Setting stops in this fashion takes into account market volatility and therefore exempts you from having to calculate or use the "Average True Range (ATR)" in determining trade size. If you do not set stops in accordance with market behavior, then you will need to determine an appropriate stop-loss point taking into consideration the "ATR" or volatility of the market you are trading. Doing this allows the market enough room for volatility based on its inherent volatility for your trade to potentially work.