Ever thought why consistently profitable traders are often those that have a rule-based approach? The thought process behind following strategy rules is very simple but also very profound and astonishing once understood. In today’s newsletter, I make a case for rule-based trading and discuss the power of Asymmetric Risk and Reward.

Rules…..Rules…..and only Rules.

The first step in building a trading strategy is to come up with an idea or assumption. Based on this idea, data is collected and studied. The process continues until the trader finds something that works.

Once the strategy is ready with clear entry, exit, and risk rules, it is tested on past data (backtesting). A key part of this test is checking the Risk-to-Reward ratio. This tells you how much you can gain compared to how much you might lose. For example, a 1:5 Risk-to-Reward means you are risking ₹1 to try and make ₹5. This also means that even if you lose 5 times, one winning trade can cover all the losses. This kind of setup is called an Asymmetric Risk-to-Reward.

If the trader follows the setup strictly and takes every trade as per the rules, they will either lose the fixed amount or gain the target amount. Over time, by sticking to the rules, the trader has a good chance of being profitable—even if not all trades are winners.

Great traders understand the power of Asymmetric R:R. This makes them objective in their approach. They know their setup in and out and they have tested it enough. All they have to do is take the trade whenever the entry is triggered as per the setup. They accept the risk because they know the risk and reward well enough to be profitable in the long run. The Asymmetric R:R is what gives the traders an emotional and psychological comfort, which ultimately is half the battle won in trading.

Let us create an Asymmetric R:R Setup

An Asymmetric Risk-to-Reward setup gives traders a clear advantage. It begins with designing a strategy, back-testing it, and calculating the risk-to-reward ratio—then consistently executing trades based on that setup. Creating such a strategy requires understanding patterns, indicators, and how they are calculated. Since each pattern has a different failure level, the risk-to-reward varies. Indicators also provide different insights, which influence strategic choices.

If you are a TNT One member, consider spending some time this weekend exploring the recorded courses to refine your approach or develop a new strategy. If you are not yet a member, take a moment to discover the TNT One membership and start building your strategy with a structured learning path.

If you found this newsletter valuable and insightful, do consider sharing it with your trading circles. Explore TNT One using the link below.👇👇👇