The Risk vs. Return Rule at Ylos Trading is a guideline aimed at balancing the potential gain with the risk of loss in each trading operation. The idea is to ensure traders do not take disproportionate risks relative to the possible return that an operation might offer. Here's a detailed explanation:

Definition:

• The rule stipulates that an operation should not have an expected loss greater than 5 times the median of winning trades. This means for each operation, the risk of loss must be managed so it does not exceed five times the median value of the gains you typically achieve from your successful trades.

How It Works:

• Risk Ratio: The rule states that the maximum acceptable loss (the risk) should not exceed 5 times the median of your previous winning trades. For example, if the median of your gains is $100, the maximum risk per operation would be $500 ($100 x 5).

Objective:

• Risk Management: The rule promotes more prudent risk management, encouraging traders to maintain a healthy balance between risk and potential return. This helps avoid scenarios where a single unsuccessful trade could negate several winning trades.

Practical Application:

• Setting Stop-Loss: When entering a trade, determine your stop-loss point (where you will exit the trade with a loss) so that the potential loss does not exceed 5 times the median of your gains. If you have a median profit of $100, your stop-loss should not allow a loss greater than $500 in one operation.
• Trade Planning: Before each trade, evaluate if it falls within this risk rule. This can influence how many contracts or shares you decide to trade, as well as the placement of your stop-loss.

Considerations:

• Dynamic Adjustment: The median of your gains can change over time, so this rule requires ongoing review of your past operations to maintain effective risk management.
• Strategy: The rule encourages the development of trading strategies that not only seek high returns but also consider the possibility of losses, keeping them within safe limits.

This rule is essential for the sustainability of trading operations, promoting an approach where risk is constantly evaluated in relation to the expected return, helping to preserve capital and accumulate consistent profits over time.