John Pocorobba - Average gain and average loss

Now, as you build your plan and you're looking at your average gain and average loss, it's important to understand the ratio between the two. In this example, I've used an average gain of 15%. Maybe your average loser is 5%. And that ratio becomes really your three to one trader. your gains are three times your losses. You need to know that ratio because that becomes really important. And you also need to know your batting average. In this example, I'm using 400, meaning that out of every 10 trades, you're going to be successful four out of 10 trades, you're batting 400. And this simple table is helpful because if you take your batting average, which you can call your win rate, and if you're a 40 percent average you're looking at this column. And then we look at your ratio, three to one so you're a 3r trader. For every dollar risk risk you're looking for a reward that's three times your risk, 3R. 15 is three times your average loss. So if we look at the intersection of a 3r trader, and they're batting 400, you'll notice that the table is green, meaning if you can consistently maintain those numbers, you will be profitable. It's simply math. Now, you can also look at all the other combinations. You can be a 2 to 1 trader, but you have to really, really have a good win rate, at least 400. You can even be, if you are a 6R trader, you can only be right 2 to 3 times and still be profitable.