THE HAnDbOOk Of TECHnICAL AnALySIS0.43, and not 1. Hence the spread adversely affects the R/r ratio for instantaneous
long market order entries executed based on bid prices.
With pending orders, the spread is not deducted from the profit or added
to the loss and is not reflected in the trading account. The spread cost is hidden
within the dynamics of the pending order setup, such that to make a profit price
has to traverse a greater distance, whereas for a loss price has only to move a rela-
tively shortly distance. As such, for long entry pending orders, the spread does not
alter expected the R/r ratio, but it does adversely affect the probability of securing
a successful trade by virtue of the amount of work that the market has to do in
order to generate profit and the ease of being stopped out. See Figure 3.28.
To mitigate the adverse effects of the spread on the reward‐to‐risk ratio for
instantaneous long entries based on bid prices on the chart, the trader needs to
figure 3.27 Buying Based on Bid Prices on the Charts.
figure 3.28 Buying Based on Ask Prices via Pending Orders.