Assessing Risk and Reward the Correct Way!
Many traders insist on fixed risk-reward ratios like 2:1 or 3:1. This seems simple. But it’s often nonsense. Rigid rules ignore market context. Volume price analysis (VPA) offers a better way. Let the chart decide risk and reward naturally.
Many traders talk of risk and reward and the fact they do not take a trade unless there is a 3 to 1 risk reward ratio or 2 to 1 – but how do they know, and does the market actually care what they need or want! There is a simple and logical way to assess the risk on each trade, and any potential reward by studying the chart and from there deciding whether to take the trade or not. The chart will reveal in multiple timeframes what is ahead and therefore likely to offer support or resistance, or where the market is likely to congest. Then and only then can you make a decision based on your reading of the chart.
Use Support and Resistance from the Chart
Identify key support and resistance levels. These are validated by volume. Place stops just beyond them. Targets go to the next logical level. Risk-reward emerges from price action. It might be 1:1 in tight ranges or 4:1 in strong trends.
Why This Flexible Approach Wins
Fixed ratios force bad trades. You skip high-probability setups with “only” 1.5:1 reward. Or take low-probability 3:1 trades blindly. VPA focuses on expectancy—win rate times average reward. Quantum indicators on NinjaTrader or MT5 highlight levels clearly. Trend Monitor and VPOC guide dynamic stops/targets.
Anna Coulling’s VPA methodology teaches this flexibility. It builds consistent results. Assess risk-reward with the chart and volume, not arbitrary rules. Quantum tools make it simple and effective. Trade what the market offers for long-term success.
How to Manage Risk with Trailing Stops
Trailing stops are one of the most effective risk management tools in trading. They protect profits while letting winners run. A trailing stop moves with price in your favor. It locks in gains. But it stays fixed if price reverses. This balances risk and reward dynamically.
Why Trailing Stops Improve Risk Management
Fixed stops can exit too early. Price pulls back, hits stop, then continues. Trailing stops avoid this. They trail behind price by a set distance. No profit giveaway on reversals. Emotional decisions reduce—rules handle exits.
Volume price analysis (VPA) enhances trailing. High volume continuation = strong trend. Trail aggressively. Low volume = caution—tighten or exit.
Common Trailing Stop Methods
- Percentage Trail: Set stop a fixed % below (long) or above (short) current price (e.g., 2%).
- ATR-Based: Use Average True Range multiplier (e.g., 2x ATR). Adapts to volatility.
- Moving Average Trail: Stop below a MA (e.g., 20-period EMA for longs).
- VPA-Based: Trail to recent swing lows (longs) validated by volume. Move on high volume continuation.
Quantum Trend Monitor on NinjaTrader aligns trails with momentum.
Practical Examples
- Trend Trade: EUR/USD rallies on high volume. Entry long. Initial stop below support. Trail to breakeven on volume pullback. Continue trailing on new highs with volume support.
- Reversal Exit: Price new high on low volume—divergence. Tighten trail or exit. Protects against reversal.
Tips for Effective Use
- Start loose—give trends room.
- Tighten as profits grow (e.g., breakeven after 1:1 reward).
- Avoid in choppy markets—whipsaws hit stops.
- Combine with VPA: Trail only on volume-confirmed moves.
Anna Coulling’s VPA methodology with Quantum tools turns trailing into disciplined art. Manage risk smarter—let winners run safely.
By Anna Coulling