Hello,
I have been talking about Reward v Risk ratios and the critical need for trading risk management on my Forex videos and blog, for some time. The subject is so vital to your long term success in Forex trading.
It's far more important than trading systems and methodologies, in my opinion however trading risk management rarely gets much attention.
Reward v Risk is a trading system all by itself. Rather than it being a separate issue, you'll eventually get round to, after you find a super duper trading system. Trading risk management should be at the forefront of your thinking.
If you focus on this critical aspect of your Forex trading, rather than spending all your time searching for a trading system which has a high win rate. You will be pleasantly surprised by your results.
I firmly believe you could take a very average method, even a useless trading system and make money with it. If you use correct trading risk management and Reward v Risk ratios every time you enter a trade.
Are you up for a challenge? Great. If you are currently struggling with bad trading outcomes and you are discovering it is difficult to generate income trading currency. Then I want you to start up a trial consideration and take 100 trades using a Reward v Risk rate of 3/1.
If you are currently suffering with bad trading results and you are finding it hard to make money trading the Forex market. I want you to open up a demonstration trading account and take 100 trades using a Reward v Risk ratio of 3/1.
Dust off any old systems you might have, you may be able to make them work under these circumstances. However you do it, get yourself a system that you can give this trading risk management equation a try.
This simple statistical equation allows you to stack the probabilities in your favour. Even before you ever take a new currency trade and regardless of what that trading plan maybe. Make a commitment to yourself that you will not cash out of your position early, under any circumstances.
Do NOT cash out early. You must stick with your profit targets no matter what.Sometimes price will almost hit your profit target, yet turn back and stop you out. I would never allow this situation to result in a loss of money.
When you find yourself in a profitable position and the trade is working nicely in your favour. Adjust your stop loss to a break even situation plus a couple of pips, to make sure you do not lose money from this circumstance.
3 Scenarios will follow...
1) The Trade doesn't reach its target and shortly after you enter the trade, the trade comes back and stops you out for a loss.
2) The trade half works out, however your target is not reached and you finish the trade with a break even situation.
3) The trade works out, the target is hit and you gain 3 times the amount you risked.
Try this method and see how you perform. Remember to only take good setups, and stick to your profit goals of 3 times your risk.
NEVER cash out before your profit margin is hit. I can not stress this to you enough, for trading risk management to work for you, you must allow the numbers to play out.
Believe it or not, having a 3/1 means that you can lose 75% of all your trades. This relates to a massive 75 trades out of every 100 you take. You wont lose money!
Just consider the impact of that for a moment...
I firmly believe successful trading is a function of strict Reward v Risk management. Fully commit to it for 100 practice trades and see how well you do.
Final thought. Do you think it is possible to win 26 trades out of the next 100 you take? If you can do this, then you could finally start to turn the corner in your trading and begin to see long lasting results.
Best wishes
Mark Chapman Forex Trader.
I have been talking about Reward v Risk ratios and the critical need for trading risk management on my Forex videos and blog, for some time. The subject is so vital to your long term success in Forex trading.
It's far more important than trading systems and methodologies, in my opinion however trading risk management rarely gets much attention.
Reward v Risk is a trading system all by itself. Rather than it being a separate issue, you'll eventually get round to, after you find a super duper trading system. Trading risk management should be at the forefront of your thinking.
If you focus on this critical aspect of your Forex trading, rather than spending all your time searching for a trading system which has a high win rate. You will be pleasantly surprised by your results.
I firmly believe you could take a very average method, even a useless trading system and make money with it. If you use correct trading risk management and Reward v Risk ratios every time you enter a trade.
Are you up for a challenge? Great. If you are currently struggling with bad trading outcomes and you are discovering it is difficult to generate income trading currency. Then I want you to start up a trial consideration and take 100 trades using a Reward v Risk rate of 3/1.
If you are currently suffering with bad trading results and you are finding it hard to make money trading the Forex market. I want you to open up a demonstration trading account and take 100 trades using a Reward v Risk ratio of 3/1.
Dust off any old systems you might have, you may be able to make them work under these circumstances. However you do it, get yourself a system that you can give this trading risk management equation a try.
This simple statistical equation allows you to stack the probabilities in your favour. Even before you ever take a new currency trade and regardless of what that trading plan maybe. Make a commitment to yourself that you will not cash out of your position early, under any circumstances.
Do NOT cash out early. You must stick with your profit targets no matter what.Sometimes price will almost hit your profit target, yet turn back and stop you out. I would never allow this situation to result in a loss of money.
When you find yourself in a profitable position and the trade is working nicely in your favour. Adjust your stop loss to a break even situation plus a couple of pips, to make sure you do not lose money from this circumstance.
3 Scenarios will follow...
1) The Trade doesn't reach its target and shortly after you enter the trade, the trade comes back and stops you out for a loss.
2) The trade half works out, however your target is not reached and you finish the trade with a break even situation.
3) The trade works out, the target is hit and you gain 3 times the amount you risked.
Try this method and see how you perform. Remember to only take good setups, and stick to your profit goals of 3 times your risk.
NEVER cash out before your profit margin is hit. I can not stress this to you enough, for trading risk management to work for you, you must allow the numbers to play out.
Believe it or not, having a 3/1 means that you can lose 75% of all your trades. This relates to a massive 75 trades out of every 100 you take. You wont lose money!
Just consider the impact of that for a moment...
I firmly believe successful trading is a function of strict Reward v Risk management. Fully commit to it for 100 practice trades and see how well you do.
Final thought. Do you think it is possible to win 26 trades out of the next 100 you take? If you can do this, then you could finally start to turn the corner in your trading and begin to see long lasting results.
Best wishes
Mark Chapman Forex Trader.
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