Vladimir Ribakov explains how risk and probability work together in forex trading. He uses an example where risking $500 to target $750 with 60% win probability creates positive expectancy. Most traders fail by ignoring probability or chasing a single indicator instead of calculating expected value.
Chapters
Let's talk about the risk and probability, 2 very important, I would even say crucial terms when it comes to successful trading. So what is a risk? Risk is the potential loss, it's exposure to a danger, exposure of your account, and it is a direct Impact, negative impact on your capital you trade with. What is a probability in that case? It's a chance of something to happen. It's statistical likelihood, odds of your profits, your gains. The key differences between the two is risk is consequences. It's how it's gonna affect your account And yourself and your behavior when you are exposed to a risk and when you hit some losses. Probability though, it's the likelihood of you to gain. That's your chances to make profits in trading. Risk, for example, let's say you go with euro-dollar buy, you risk $500 per trade, and that's your potential loss in this trade, that's your risk. Probability, it's what are these chances of yours to end up with a gain. It could be 50% chance, 60% chance, 70% chance. Okay. And to make sure you end up As a successful trader making profits, you have to make sure your probability is high enough and your gain, your target, is higher than your risk, your loss. For example, if you are risking $500 and your target is $750 and your probability is 60% chance based on technical analysis and other factors, that means the numbers work in your favor. Because if you will win in probability of 60% and the risk versus the gain, in that case $500 versus $750, that means you will be making more profits than you lose. Common trader mistakes: ignoring probability of a trade to pay you and only focusing on risk. Another very popular mistake is assuming certainty, thinking outcomes are guaranteed because you have the Holy Grail indicator. The professional trading approach you should have is assess potential loss versus probability of a gain, make trades only based on numbers, risk versus reward. And the balance, the risk and the probability for consistency and for stable trading. Want to learn more? Join our trading family, Home Trader Club.
