Risk Reward in Forex

[marc walton]

The secret to becoming a successful forex trader is the ability to maximise your gains and minimise your losses. This is easier said than done ! In my 1st month trading forex I won 65% of the trades and yet I somehow managed to lose money !

Obviously my losses were bigger than my wins, a common problem for the new forex trader. The solution was to look more closely at my fx trading style. I was getting out of trades too early and my losses were too high.

Conventional wisdom says that you should not enter a trade unless your potential gain is at least double your potential loss. Thus, your risk/ reward ratio is 1:2. Seems easy enough, but how can the new trader determine what is the potential gain in a trade ?

I posted this article originally on the blog, to see the full article including the diagrams, click here Risk Reward in Forex

[robsam]

I agree with Mr. marc walton. The percentage of your loss must be lower than gain (obviously). Now the main point comes, how to achieve more and more gain in comparison of your losses ? The key behind success is to keep continuous monitoring, knowledge about logical predictions & awareness of technical & fundamental analysis.

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"gOING hIGH"
forex broker

[raa]

One of the solution is to place your trade, put stops and targets, use some EA that will move stops according to price movements in steps (not pip by pip like a regular trailing stop in MT4) and.... go for a nice walk, go shopping, visit friends. More often than not, you will close your order early if you are looking at charts, and if you are not there, trade can be managed by the rules. If you trade of daily charts, you don't really need a special EA to do this, as periods to move stops and take profits will be long enough.. I have heard many traders telling that they have better results when they are leaving a trade alone to work it out.

[sfx1971]

One of the solution is to place your trade, put stops and targets, use some EA that will move stops according to price movements in steps (not pip by pip like a regular trailing stop in MT4) and.... go for a nice walk, go shopping, visit friends. More often than not, you will close your order early if you are looking at charts, and if you are not there, trade can be managed by the rules. If you trade of daily charts, you don't really need a special EA to do this, as periods to move stops and take profits will be long enough.. I have heard many traders telling that they have better results when they are leaving a trade alone to work it out.

I couldn't agree more. I place the trade and WALK AWAY, coming back to manage my positions just after the 4 hour candle close. I found that if I watched a trade, the demons in my head would talk me into doing things that I never intended to do before I put my money on the table. So, by learning to walk away I dramatically improved my results!

[raa]

Thanks for confirming this! I have to practice in it more as well