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will go behind that R for you, right? That will come as you

for reporting profit and loss, it's probably the most

return the same number of pips on each of their trades right

100 pips as trader A so they have a much a reward to risk

why this metric is useful is because we can now see that

trader B on the other hand they risk 50 pips to make the same

let's look at each trade that they took trader A risk 20 pips

and reward. So R removes the monetary risk and it just

account balance is obviously a much more useful figure than

make 300 pips so that means you only make 2% of your account

trade but you win the second so how many total pips do you

300 pips minus your 20 pip loss is a really nice 280 pips net

just pips or absolute monetary amounts. However there are

risk behind that return. So this is where the fourth

want to lose in the first trade your price hits your stop loss

which is a £100 loss the second trade is a winner it has a2-1

the rest of the career. That is how you achieve longevity in

meaningless statistics. So we've now looked at the first

10% right because they had a 5 R trade but trader B had to

you just lose the 1% that you risked which is a 100-pound

was a two R trade. So, R is a really good metric for a number

important because you know, we are risk managers at the end of

both return a 100 pit profit and let's say that this both

you risk 100 pounds on each trade so let's look at two

because that is how you keep the numbers on your side for

about what risk you expose yourself to make that reward

you win the first trade and price hits your profit target

number as high as possible and then the monetary amounts that

much more accurate reflection of that balance between risk

made, it removes those from the equation because both of those

trading, then, risk management is all that matters. It's all

they both had 100 pips profit they both returned 10% on their

bank 100 pips profit so therefore you have a reward to

you always risk 1% portrayed right no matter what then the

equates to a 10% profit for traders on their accounts so at

this industry. So focus on and build the skill to make your R

the day and if you want to move into the professional side of

ratio of two toone so there are is just two so again the reason

focusing on how much money was made or how much percentage was

different scenarios now in scenario A you win the first

method, R becomes extremely useful because it gives us a

although they both returned the same percentage and they both

Just quoting the total percentage return on your

risk ratio of 5-1 as 100 pips is obviously five times as big

of reasons and I think out of all of the four core methods

their pip count they're really just shouting about completely

to make 100 pips, so they have a 5-1 reward to risk ratio and

return on your 10, 000 poundaccount right now in the

again R removes the monetary risk and it just focuses on the

of pips that you make or the percentage on your account that

any bearing on the actual risk that was taken to generate that

that's all R is really it's a plus 5R return it's your reward

same return of 10% because they only had an R of two, right? It

to risk ratio but just stated as a single digit right now

reward to risk because remember you're risking 150 pips to just

why when someone is talking about or you know showing off

and that is mainly because it doesn't fully tell you the risk

account balance trader A actually risk 2% to make that

risk more than double that they had to risk five to make that

return on capital so this is one reason why people you know

banked 100 pounds, which is a 1% returning account but in

you only risk 1% of your account on each trade that you

that was used to actually generate that return because if

used to generate those returns and this is where R comes in so

people will vary their risk between different trades

can be affected by what lot size that the trader decided to

profit of 400 pounds, right? When you compare that to

down minus 50 pips but you made a net profit of four percent. A

account, it won't tell you the full story of the reward to

nought. 5% betrayed nought. 25% betrayed 22% portrayed if some

between different setups and strategies so in those cases

prove yourself worthy to handle larger and larger amounts of

pip profit target this means that if you lose the trade you

focuses on the pip risk to reward ratio. So rather than

so if you have two traders A and trader B let's say they

shouting about their profits in just absolute monetary figures

in the second trade you obviously make a net 100

still job to just looking at percentage return on its own

100pound loss in the first trade from your 200 poundprofit

obviously lose 20 pips but if you win the trade then you can

scenario B, you made a massive 280 pip net profit and you

that quoting your PNL as a percentage return on your

pit risk which can be extremely useful so let me show you why

account balance did you actually win or lose so

accurately reflects the true skill of a trader. The amount

and you lose 20 pips you win the second trade and price hits

the point we don't really know anything about what risk was

three core methods of reporting our PNL and we can clearly see

put on so the volume that they put on their trades right so

information to give us an idea about the risk that they took

poundprofit, which is a 1% net return across both trades Now,

trade which is a 5% return now the second trade was a loss so

actually made a net profit of 400 pounds, which is a 4%

trade but you lose the second trade so let's calculate how

with this simple formula. So, it's the total profit that you

pip loss this means that across the two trades you are now down

what do you notice here between those two scenarios? Because in

risk 150 pips in order to try to make 300 pips so this means

scenario B, where you'd made those 280 pips profit but you

total percentage return will make sense but some people risk

which is a 200 poundsprofit and then when you subtract the

your profit target and you bank a massive 300 pips so therefore

is a better trader or did they have an equal performance?

profit but how does this translate into actual money

only returned 100 pounds. So, what metric do you think more

amount that you risked so you made a 500 pound profit on this

scenario A, you actually lost 50 pips in total, right? You're

second trade and price hits your stop loss for a minus 150

risk ratio of 5-1 this means that you banked five times the

that means you bank 100 pips right but because you lose a

percentage of the total account balance which is calculated

first trade minus the 100 loss on the second means that you

loss so across the two trades the 500 pound profit on the

second scenario in scenario B this time you lose the first

their same 10, 000 profit that's actually only a 1%

stop loss risk so let's say your account size is 10, 000

remember risk per trade is 1% of your account size so 100 per

trade so as the first trade is a winner and it has a reward to

and they both make 10, 000 profit in that week which one

targeted at the uneducated masses. Secondly, I'm also yet

misleading really so let say that you take two trades in the

just saying how much money you made or lost in absolute terms

to report your PNL in why well because neither of them have

first trade you have a 20 pip stop loss and you have a 100

to return that 10000 pounds, right? So, the most common way

visual example to see how this is just as pointless and

you return. Quite clearly the percentage right? So this is

who just are trying to attract attention from the wrong people

often see newbie traders or you know those scammers use to

right with no other information just a bit ridiculous in my

opinion probably the most irrelevant and misleading terms

so you know I saying I lost 500 pounds or $500 whatever the

take so in this case 1% of 10, 000 is 100 pounds so therefore

and you have pretty disciples and risk management rules so

profit and loss performance on your trading account or a

because your profit target is only two times as big as your

refer to their profits in are just pips but let's take a more

a net total of minus 50 pips but how much percentage of your

Shouting about daily profits is usually just a marketing ploy

then well the first trade is a so you lose 1% of your account

trademark of a rookie or worse, a scam artist preying on naive

risk ratio now the first two methods are in my humble

actually have a 1 million pound account so that means that

to meet a professional trader who actually refers to their

pound account so this means that that 10, 000 profit is

the example above of the two traders trader A has a 50, 000

opinion and you know to be fair it's only usually done by those

for the wrong reasons now the second core method that you'll

fixed net profit every day over a significant time period.

Shouting about your profits and losses in Pips is often the

I'm yet to meet a single trader who even close to making a

balance and then you multiply that figure by 100, which,

trader's true skill set. We need a little bit more

Forex trader, you will inevitably come across a social

Firstly, a consistent fixed daily return is highly

instantly ring in your head if or whenever you see this.

media page, Facebook advertisement, YouTube video,

is usually method free to refer to trading returns as a

returned and then you divide that by the your total account

that allows them to generate, you know, X number of pips per

improbable given the nature of random distribution in

figures, they don't tell you anything useful about a

as your 20 pip stop loss now in the second trade this time you

of the 50 grand balance right but the second trader they

which then gives you the the figure as a percentage so in

specific trade the first is probably the simplest which is

actual skill set because let's say we have two traders right

you have a much smaller reward to risk ratio of only 2-1

Well, we don't really know because absolute monetary

many total pips that you make in this first scenario so as

return so it kind of gives you zero indication of the traders

then equal to a 20% return because 10, 000 profit is 20%

second is how many total pips that you returned the third is

the percentage that you have returned based on your total

If you have not already done so, during your journey as a

basically four sort of general ways that you can quote your

and L in terms of R which essentially is your reward to

indeed an essential component of the risk management process.

account balance and the final method is to calculate your P

or the uneducated now let me explain why well there are

capital. R is what investors care about.

probability-based business models such as trading. Now,

profits in pips. Now, while measuring pips, yeah, it is

day or X amount of dollars per week and alarm bells should

article, company, or individual who claims to have a system