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Originally Posted by Polite
Hi, maybe I dont understand something - but risk to reward is calculated before enternig a trade and it could not be changed during the trade.
During the trade can only be changed risk and only if a SL is moved to new level. For example risk of loss is reduced to zero at breakeven, risk of not reaching a certain target is zero if we move SL to that level.
So we have here three different ideas; risk to reward, risk of loss, risk of not reaching target. Could you explain which one you are talking about?
Thanks for reading  |
Thanks for asking question.
You have quoted me from Pyramiding in Kolachi Method.
I am talking about risk reward ratio.
Suppose we take a trade and our SL is 100 pips and out TP is 300.So our ratio is
Risk:Reward :: 1:3
Now when we want to pyramid meaning that we want to add a lot to our running trade, we again need to assess the profitability and viability of new trade.
Let us say now market has moved 100 pips in our favour in running trade and we wat to add a new trade here.
Now we know that target is fixed.Hence we hace TP =200 for new trade but our SL is 100 pips as per our Money Management rules.
Hence for Pyramid trade we have,
Risk: Reward :: 1:2
Therefore for new trade our cross sectional area is less than what we had in our first trade.
In first trade we had much better reward chances and in second one we have lesser ratio.
That is why Kolachi Method does not advocate pyramiding.However, pyramiding is allowed in KM as per MM rules.
kolachi