Risk/Reward Ratio in Forex Trading?

Risk/reward ratio is very important when trading over a long period of time. Many new traders coming into the forex market fall into the trap of refusing to let their winning trades run. Lets have a look of how that will affect them over time.

Trader #1 Risks $100 and takes profit at $25 giving him a risk reward of 4-1 this means that in order for him to break even in the long run he must achieve 80% winning trades.

Trader #2 Risks $100 and takes profit at $100 giving him a risk reward of 1-1 this means that in order for him to break even in the long run he must achieve 50% winning trades.

Trader #3 Risks $100 and takes profit at $200 giving him a risk reward of 1-2 this means that in order for him to break even in the long run he must only achieve 33% winning trades.

Trader #4 Risks $100 and takes profit at $300 giving him a risk reward of 1-3 this means that in order for him to break even in the long run he must only achieve 25% winning trades.

Now who do you think is going to succeed in the long run? Surely it is far easier for traders 3 & 4 as they have less pressure to achieve a high win % in order to make money. Are you beginning to see how important this is? Never open a trade if you do not anticipate your trade to gain you at least the same amount as you risked, I prefer to try and go for twice or three times the amount I risk while always moving my stop to break even as soon as I can.

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