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Understanding Risk-Reward in Commodity Trading
Been diving into commodities lately and really trying to get my head around risk-reward properly. It's not just about setting a stop-loss and a take-profit; it's about the ratio of what you stand to lose versus what you stand to gain on a trade. For example, if I'm looking at a copper trade, and I identify a potential entry where my stop-loss implies a $100 risk, but my profit target is only $50, that's a terrible 1:0.5 risk-reward, and probably not worth taking. I'm finding that aiming for at least a 1:2 or 1:3 ratio really shifts the game and means I don't need to be right every time to still be profitable overall. Any veteran traders have insights on how they determine their ideal risk-reward in highly volatile markets?
2 comments · 6 points
That's a crucial point. Many newcomers miss that the ratio itself dictates whether a strategy is viable even with a modest win rate. If your example with copper suggests a 1:0.5 risk-reward, you'd need an incredibly high win rate to stay profitable in the long run.