Matchbook And Betfair Risk/Reward Ratios

Would you rather make many bets that pay 1 and risk 5 or many bets that pay 5 and risk 1?

Let me ask you a question on ratios. What’s better – taking many trades that have a reward to risk ratio of 1 to 5 or taking many trades that have a ratio of 5 to 1?

Would you rather make many bets that pay 1 and risk 5 or many bets that pay 5 and risk 1?

If you answered the latter you’d be dead wrong.

On the surface the idea of making many trades that have a positive risk reward profile looks immensely attractive. Who wouldn’t you want to get paid 5 every time you risk 1? Unfortunately many traders confuse the idea of payoff with the probability of actually collecting those payoffs. The probability of consistently making a trade that makes you 5 while keeping risk to 1 is generally very small – MAYBE 15% if that. Ratios not so good then?

But assuming you have a long term positive expectancy (i.e. say you lose 3 for every 1 you make, but your winning percentage is 77% or better) you should do as many trades as possible for the same reason that insurance companies write as many policies as possible – the law of large numbers works in your favour. As long you keep each individual trade loss to a very small risk size (between 0.5% and 1.0%) your risk of ruin is manageable. The more you trade the more profits you’ll build up and the more capital you’ll have at your disposal to survive.

The high reward/low risk trades have the exact opposite profile. You spend a lot of time bleeding away money until you finally hit a good trade. The psychological toll of constantly losing money also makes traders much more reluctant to pull the trigger just at the moment when they need to.

So the lesson of the day is if you trade like an insurance company don’t be afraid to write a new policy after a hurricane wipes out your profits.

JuiceStorm Live

Get A #BetTrader Free Trial For #Betfair at RacingTraders.co.uk Today!

Top News: Premier League Head-to-Head Stats: 28th Feb-1st Mar 2020.

Live trading at JuiceStorm.com/Betfa… too!

juicestorm.com/footb… pic.twitter.com/AuhL…

About 2 hours ago

Crypto Trading

Fancy learning how to trade crypto manually or using a bot? Commission free? You’ll be using the ladder trading interface that you’re familiar with which RacingTraders introduced and all other Betfair trading applications copied.

Take a look at TradeZone and DigiBot here.

If you haven’t already now would be a good time to join the Digitex University to watch our friends at Lion Asset Management trade BTCUSD commission free live 24/7 at Digitex Futures.

80% of private investors trade the wrong way and that is why they lose money trading. Worse still, they spend thousands with “teachers” – mostly charlatans who have been sacked, failed in finance or are just internet marketers.

If anyone wants to learn to trade, then speak to someone who is legally responsible for managing other people’s money. And has been doing it, profitably, for a very long time.

Comments