How Can Your Win/Loss Ratio Determine Your Crypto Trading Success? The gain/loss or return/risk ratio is an important factor in trading. You can improve your trading strategy and performance if you understand it better.
What is the win/loss ratio or risk reward ratio?
The win/loss ratio is an indicator. This ratio is obtained by comparing the capital you risk losing (your investment) to what you are potentially trying to gain.
If your win/loss ratio is 3:1 (sometimes referred to as 3/1 or 1:3), that means you risk 1 to win 3. For example, you risk $1000 to win $3000.
The ratio will be 1:1 if you risk $1000 to win $1000.
Of course, you don’t risk all your capital on a single trade. It is generally recommended not to exceed 2% of your capital in one position.
👉Continue to 20k against bitcoin. Bulls seem to be good at controlling short-term momentum.
👉 Let’s go to the big sales box where there should be many sellers because they will have good risk/rewards for short/sell. https://t.co/DbXFBqcqC2 pic.twitter.com/pREGizsaEX
— Crypto Sharing (@CryptoSharing) July 7, 2022
If you have a capital of €10,000 for example and you decide to risk 1% per trade, you will make €100 per position. And for each position, you will try to earn $300, or 3% of your capital.
The unrealistic profit/loss ratios of crypto traders!
In traditional markets, traders typically have ratios ranging from 1:1 for scalpers to 5:1 for more patient traders. But crypto traders or speculators often set the bar too high. It is common to see a trader aiming for x100, or even x1000 on newly launched tokens. These are ratios of 100:1 and 1000:1 respectively. For a ratio of 100:1, you buy for example €100 of a token and aim for €10,000 in earnings.
#Error Token. launched the low cover. 3k mcap. Beautiful name. Bullish #x100
🎯 tg: https://t.co/rL9iapyKBrhttps://t.co/sp9QSSlfjy@1goonrich #crypto #memecoin #trending pic.twitter.com/lmPFn76fyq
— ERROR (@Error_token) July 9, 2022
This has happened to many investors in conditions where the market is trending. But when markets stagnate or fall, such performance becomes unrealistic!
Don’t settle for a low ratio either!
The ratio can sometimes be disadvantageous. This is when you are risking more than you are trying to gain. This usually happens with very active scalpers. But in the long term, it may be very difficult for a given trader to get away with a ratio of less than 1 (for example, 0.5:1).
What is the best win/loss ratio?
Experts advise to opt for a 2:1 ratio, the risk/reward ratio should be at least twice as high. For new traders, it is recommended to be more patient and aim for a ratio of at least 3:1.
How to calculate position size?
Position size calculator is essential for cryptocurrency trading. It allows you to calculate the exact position size for your trades. Position size is calculated using the following formula:
[(Taille du compte * % de risque) / (Prix d’entrée — Stop Loss)] * Entry
There are calculators online to make it easier for you. For Bitcoin/USD, I found this calculator which is pretty accurate. There are also Cashbackforex with more cryptocurrency pairs.
Source: The Blog
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