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Trading forex market is not easy , you can make profits once in a while but the key question is can you make profits week after week month after month and year after year . A trader can be considered successful if he/she can show consistent returns or profits .
To achieve this a traders trading strategy should give him an edge in terms of risk/reward ratio . A 1:1 risk reward ratio means that a trader is risking the same amount for making that same amount of money . So having a stop loss of 50 pips with a target price of 50 pip profit is an example of 1:1 risk reward ratio . So a trader is risking 50 pips to make 50 pips . With a 1:1 ratio a trader has to be correct more than 50% of the time to be consistent . So say in a month a trader takes 10 trades with a 1:1 risk reward ratio he has to be profitable in at least 6 trades to make profits for the month .
In my opinion a good risk reward ratio is 2:1 or 3:1 . That means say for each trade having 50 pip stop loss a traders target price is 100 pips for a 2:1 risk reward or a target price of 150 pips for a 3:1 risk reward ratio . This is so because with a 2:1 risk reward ratio a trader just has to get 4 profitable traders out of 10 to make consistent profits . With a 3:1 risk-reward ratio a trader just has to get 3 traders right out of 10 to be profitable consistently . Your strategy has a greater probability of success with a 3:1 risk -reward ratio than with a 1:1 risk reward ratio .
Always remember that what matters in the long run is consistency and developing a strategy with a highly favorable risk-reward ratio will do along way in achieving this . Happy trading to all!
To achieve this a traders trading strategy should give him an edge in terms of risk/reward ratio . A 1:1 risk reward ratio means that a trader is risking the same amount for making that same amount of money . So having a stop loss of 50 pips with a target price of 50 pip profit is an example of 1:1 risk reward ratio . So a trader is risking 50 pips to make 50 pips . With a 1:1 ratio a trader has to be correct more than 50% of the time to be consistent . So say in a month a trader takes 10 trades with a 1:1 risk reward ratio he has to be profitable in at least 6 trades to make profits for the month .
In my opinion a good risk reward ratio is 2:1 or 3:1 . That means say for each trade having 50 pip stop loss a traders target price is 100 pips for a 2:1 risk reward or a target price of 150 pips for a 3:1 risk reward ratio . This is so because with a 2:1 risk reward ratio a trader just has to get 4 profitable traders out of 10 to make consistent profits . With a 3:1 risk-reward ratio a trader just has to get 3 traders right out of 10 to be profitable consistently . Your strategy has a greater probability of success with a 3:1 risk -reward ratio than with a 1:1 risk reward ratio .
Always remember that what matters in the long run is consistency and developing a strategy with a highly favorable risk-reward ratio will do along way in achieving this . Happy trading to all!
