RISK AWARE INVESTMENT GUIDE FOR EVERYONE

  Let’s get down to the nuts and bolts of the TLS and related metrics. As mentioned earlier, the ultimate universal goal of a resilient investor is to minimize the Risk/Return Ratio (RRR) by minimizing Risk whilst maximizing Return as follows: min(RRR)=min(Risk)/max(Return), where RRR = (Entry Point – Stop-Loss Point)/(Profit Target - Entry Point). The problem is that Return and Risk are intertwined cogwheels: they influence and counteract each other. Depending on the involved investment decisions, the focus can be on either one of them, but the effect will always  impact both. That’s why this problem is sometimes referred to as the Risk-Return Trade-Off “No Risk, No Return”.     For example, RRR=0.1 means that an investor should be prepared to lose $1 for the prospect of earning $10. Here, Risk is the difference between entry point for the trade and the stop-loss order [1]. The unrealistic zero value Risk=0 refers to the theoretical rate of return of an absolut...