Here’s why risk/reward is key to trading Bitcoin
Crypto is highly unpredictable. Luckily you don’t need a crystal ball to profit.
What you need is to simply win more than you lose: the SuperForecasters strategy on the chart above is an example.
This strategy made +72% since May 2020, performing well in bearish, sideways, and bullish markets.
There are two parts to that: your win-rate and your risk-reward ratio.
Win-rate is simple: it’s the % of trades that are profitable. It’s never going to be 100% but the exact threshold for profitability depends on your risk/reward ratio.
The risk/reward ratio is also fairly straightforward. It’s a comparison of your potential profit to your potential loss. For example, a 1:1 risk/reward ratio means that for every $1 you win, you risk losing $1.
With a risk/reward ratio of 1:2, you risk $1 to possibly win $2. Similarly, with a 1:3 risk/reward, you risk $1 to win $3.
You can manage your risk/reward ratio with stop-loss and take-profit orders.
We recommend having at least 1:2 risk/reward — that’s what we have in one of the strategies for Cindicator’s SuperForecasters.
Here is how this strategy works.
1) Look at all the top-10 signals;
- Take the second-highest value in long entries as the entry for the long;
- Take the second lowest value in short entries as the entry for the short;
2) For the stop-loss, take-profit levels and calculate the difference between long and short entries for each SuperForeacster and take the simple average for these differences.
3) Divide this value by 2 to find a distance for the take-profit level; divide this value by 4 for the stop-loss. This allows you to maintain 1:2 risk/reward ratio.
4) If the trade is not closed before the new indicators are out, close it (i.e. at 00:00 am UTC);
5) Open only one trade a week — either short or long, depending on what level is broken first.
Since May 2020, the win-rate for this strategy is 52%.
Check out more details in our website via the link below.
What you need is to simply win more than you lose: the SuperForecasters strategy on the chart above is an example.
This strategy made +72% since May 2020, performing well in bearish, sideways, and bullish markets.
There are two parts to that: your win-rate and your risk-reward ratio.
Win-rate is simple: it’s the % of trades that are profitable. It’s never going to be 100% but the exact threshold for profitability depends on your risk/reward ratio.
The risk/reward ratio is also fairly straightforward. It’s a comparison of your potential profit to your potential loss. For example, a 1:1 risk/reward ratio means that for every $1 you win, you risk losing $1.
With a risk/reward ratio of 1:2, you risk $1 to possibly win $2. Similarly, with a 1:3 risk/reward, you risk $1 to win $3.
You can manage your risk/reward ratio with stop-loss and take-profit orders.
We recommend having at least 1:2 risk/reward — that’s what we have in one of the strategies for Cindicator’s SuperForecasters.
Here is how this strategy works.
1) Look at all the top-10 signals;
- Take the second-highest value in long entries as the entry for the long;
- Take the second lowest value in short entries as the entry for the short;
2) For the stop-loss, take-profit levels and calculate the difference between long and short entries for each SuperForeacster and take the simple average for these differences.
3) Divide this value by 2 to find a distance for the take-profit level; divide this value by 4 for the stop-loss. This allows you to maintain 1:2 risk/reward ratio.
4) If the trade is not closed before the new indicators are out, close it (i.e. at 00:00 am UTC);
5) Open only one trade a week — either short or long, depending on what level is broken first.
Since May 2020, the win-rate for this strategy is 52%.
Check out more details in our website via the link below.
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